EXEMPT OR NOT EXEMPT? HOSPITALS AND OTHER PROPERTY
EXEMPT OR NOT EXEMPT? HOSPITALS AND OTHER PROPERTY PRESENTED BY: MARK E. GIAQUINTA SARAH L. SCHREIBER EXEMPTIONS GENERALLY EXEMPTIONS GENERALLY What? Reduce tax obligation; or Eliminate General
obligation to pay tax. rule Property is taxableexcept when its not. IND. CODE 6-1.1-10-16 All or part of a building is exempt from property taxation if it is owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes. EXEMPTIONS GENERALLY Privilege, not a right
A taxpayer must apply for an exemption under IND. CODE 6-1.1-11-3. Exemptions are not automatic; rather, they are granted when a taxpayer meets all statutory requirements. APPLYING FOR AN EXEMPTION Application IND. (Form 136) CODE 6-1.1-11-3(a)
Subject to subsections (e), (f), and (g), an owner of tangible property who wishes to obtain an exemption from property taxation shall file a certified application in duplicate with the county assessor of the county in which the property that is the subject of the exemption is located. APPLYING FOR AN EXEMPTION IND. CODE 6-1.1-11-3 contd An exemption application which is required under this chapter shall contain the following information:
(1) A description of the property claimed to be exempt in sufficient detail to afford identification. (2) A statement showing the ownership, possession, and use of the property. (3) The grounds for claiming the exemption. (4) The full name and address of the applicant. (5) For the year that ends on the assessment date of the property, identification of:
(A) each part of the property used or occupied; and (B) each part of the property not used or occupied; for one (1) or more exempt purposes under IC 6-1.1-10 during the time the property is used or occupied. (6) Any additional information which the department of local government finance may require. APPLYING FOR AN EXEMPTION IND.
CODE 6-1.1-11-4 The exemption application referred to in section 3 of this chapter is not required if the exempt property is owned by the United States, the state, an agency of this state, or a political subdivision (as defined in IC 36-1-2-13). However, this subsection applies only when the property is used, and in the case of real property occupied, by the owner. The exemption application referred to in section 3 of this chapter is not required if the exempt property is a cemetery. The exemption application referred to in section 3 of this chapter is not required if the exempt property is owned by the bureau of motor
vehicles commission established under IC 9-15-1. APPLYING FOR EXEMPTION IND. CODE 6-1.1-11-4 contd The exemption application referred to in section 3 or 3.5 of this chapter is not required if: (1) the exempt property is: (A) tangible property used for religious purposes described in IC 6-1.1-10-21;
(B) tangible property owned by a church or religious society used for educational purposes described in IC 6-1.1-10-16; (C) other tangible property owned, occupied, and used by a person for educational, literary, scientific, religious, or charitable purposes described in IC 6-1.1-10-16; or (D) other tangible property owned by a fraternity or sorority (as defined in IC 6-1.1-10-24). (2) the exemption application referred to in section 3 or 3.5 of this chapter was filed properly at least once for a religious use under IC 6-1.1-10-21, an educational, literary, scientific, religious, or charitable use under IC 6-1.1-10-16, or use by a fraternity or sorority under IC 6-1.1-10-24; and
(3) the property continues to meet the requirements for an exemption under IC 6-1.1-10-16, IC 6-1.1-10-21, or IC 6-1.1-10-24. GRANTING AN EXEMPTION PTABOA Have statutory prerequisites for exemption been met? If any have not been met, exemption cannot be granted.
If denied: Option to Appeal CHANGE IN OWNERSHIP OR USE If, after an assessment date, exempt property is transferred or its use has changed: Determine Through whether property is still exempt. 2015: Example:
If a school receives an exemption on a parcel under IC 6-1.1-10, sells the property after March 1, and property no longer used for exempt purpose, the exemption is terminated for that assessment date. Beginning in 2016, exemption would remain in place for the remainder of the year despite the change in ownership or use. CONSTRUCTION AGAINST TAXPAYER The exemption statute is to be strictly construed against the taxpayer.
Taxpayer has the burden of establishing its right to the tax exemption. If the taxpayer meets its burden, then the burden shifts to the assessor to rebut the taxpayers evidence. NONPROFIT/NOT-FOR-PROFIT ORGANIZATIONS Nonprofit organizations are not automatically exempt. Nonprofit status is a state law concept. Nonprofit
status may make an organization eligible for certain benefits, such as state sales, property and income tax exemptions. To qualify as exempt from federal income tax, an organization must meet requirements set forth in the Internal Revenue Code SPECIFIC EXEMPTIONS HOSPITALS Ind. Code 16-21-9-3 As
used in this chapter, nonprofit hospital means a hospital that is organized as a nonprofit corporation or a charitable trust under Indiana law or the laws of any other state or country and that is: (1) eligible for tax exempt bond financing; or (2) exempt from state or local taxes. Generally, [h]ospitals maintained, not for pecuniary profit, but to relieve the destitute and deserving, are classed as charit[able].
See Indianapolis Osteopathic Hosp., Inc. National Trend on HOSPITALS BUT, nonprofit hospitals NOT ALWAYS exempt from taxation If an exempt hospital owns other property, that other property does not automatically receive a charitable purposes exemption. See Indianapolis Osteopathic Hosp., Inc. A New Jersey tax court decided in June 2015 that because Morristown (N.J.) Medical Center operates, in many ways,
like a for-profit business, it should not be exempt from property taxes There, hospital was more like a for-profit entity because it practiced overly aggressive debt collection from poor patients. National Trend on HOSPITALS Contd Carle Foundation v. Cunningham Township An Illinois Appellate Court struck down as unconstitutional Section 1586 of the Property Tax Code, which created a procedure for granting an exemption to a hospital if the total value of the hospitals charitable services exceeded the hospitals estimated property tax liability.
May 2016 A limited partnership filed a class action lawsuit naming Northshore University Health System and all other hospitals in IL currently exempt from property taxes as potential class members, along with the Cook County Clerk and Treasurer. The lawsuit seeks payment from each of the hospitals in the amount of taxes they would have paid had the hospitals not received an exemption. Wellness Centers National Trend More
and more hospitals are creating so-called wellness centers to promote exercise and healthy life styles. See Indianapolis Osteopathic Hosp., Inc. (citing Tennessee case law). We feel it would be a misuse of the tax exemption granted to charitable hospitals if every revenuegenerating venture they embarked upon automatically benefited from the exemption, so long as that venture could be characterized as in some way promoting health. See Indianapolis Osteopathic Hosp., Inc. IND. CODE 6-1.1-10-16 This section does not exempt from property tax an office or a
practice of a physician or group of physicians that is owned by a hospital licensed under IC 16-21-2 or other property that is not substantially related to or supportive of the inpatient facility of the hospital unless the office, practice, or other property: provides or supports the provision of charity care (as defined in IC 16-18-2-52.5), including providing funds or other financial support for health care services for individuals who are indigent (as defined in IC 16-18-2-52.5(b) and IC 16-18-2-52.5(c)); or provides or supports the provision of community benefits (as defined in IC 16-21-9-1), including research, education, or government sponsored indigent health care (as defined in IC 16-21-9-2). INPATIENT FACILITIES The
inpatient facility is not the entire hospital," but that part of a hospital where "admitted patients are provided overnight accommodations, meals and medical treatment." Methodist Hospitals Inc. v. Lake county PTABOA, 862 N.E. 2d 335, 339 (Ind. Tax Ct. 2007). Webster's Dictionary defines inpatient as a patient in a hospital or infirmary who receives lodging and food as well as treatment[.] PHYSICIAN OWNED OFFICES Physician offices owned by hospitals are generally not exempt unless the office is substantially related to or
supportive of the in-patient facility of the hospital. The Court will determine whether the physician offices are separate entities from the hospital or if they operate as one entity. St. Margaret Mercy Healthcare Ctrs., Inc. v. Lake Cnty. Prop. Tax Assessment Bd. of Appeals , Pet. Nos. 45-034-00-2-8-00001 and 45-036-00-2-8-00003, p. 18, 51 (Ind. Bd. Tax Rev. 2008). PHYSICIAN OWNED OFFICES Must be reasonably necessary for the maintenance of, and not just related to, the exempt purposes of the hospital.
The Court notes that although the PCAs provide services that may support Methodist's overall continuum of care (i.e., by providing medical services to individuals from [a]ll over the entire region and admitting PCA patients into Methodist's hospitals), merely demonstrating that such services are offered, without more, does not clarify how the PCAs are substantially related to or supportive of Methodist's inpatient facilitiesIn other words, this Court will not presume that a substantial relationship or supportive network arises merely because two entities are engaged in the same type of business activity. Methodist Hospitals, Inc. v. Lake County PTABOA, 862 N.E.2d335 (Ind. Tax Ct. 2007). SUBSTANTIALLY RELATED TO OR SUPPORTIVE OF
[Substantially related to or supportive of" means that the property is "associated, to a considerable degree, to a hospital's inpatient facility or that the other property provides considerable aid to, or promotes to a considerable degree, the interests of a hospital's inpatient facility." See Methodist Hospitals Inc. v. Lake county PTABOA, 862 N.E. 2d 335, 339 (Ind. Tax Ct. 2007). FACTORS CONSIDERED TO DETERMINE WHETHER SUBTANTIALLY RELATED TO OR SUPPORTIVE OF Private physician practices admitting patients to the hospital without more is not enough to
earn tax exempt status. See St. Margaret Mercy Healthcare Ctrs., Inc. FACTORS CONSIDERED Operating as Unified Entities? Whether the physician offices are separate entities from the hospital or if they operate as one entity. Standing alone, however, the fact that the physician office and the hospital operate as a unified entity is not enough to qualify the physician office for exemption. Methodist asserts that the PCA medical offices are entitled to a charitable purposes exemption for three reasons: (1) because it
uses the PCAs to provide traditional medical services, (2) because the PCAs provide medical services as a part of Methodist's overall continuum of care[,] and (3) because the PCA physicians do not use the offices for personal gain. [T]he Court is not persuaded that such assertions satisfy the statutory criteria for a charitable purposes exemption. See Methodist Hospitals Inc. FACTORS CONSIDERED The presence of hospital negotiated employment contracts for physicians requiring that the physicians refer their patients to the hospital for any necessary hospital services would weigh in favor of finding substantial relation or support of.
The employed physicians compensation is not impacted by a patients inability to pay and, in fact, doctors risk termination if they fail to provide patient services without regard to the patients ability to pay or payor classification. As a result of this policy, the physician practices provide more care to Medicaid patients than the national average and its employed physicians did not see as many privatelyinsured patients as their peers. See St. Margaret Mercy Healthcare Ctrs., Inc. FACTORS CONSIDERED % of Inpatient Admissions and Corresponding Revenues Generated The employed physicians' referrals accounting for a certain percentage of all inpatient admissions at the hospital and the revenues generated from all outpatient ancillary services may
amount to substantial support. St. Margaret Mercy also submitted a Consolidated Summary of Social Accountability Expenditures that quantified the benefits to the poor and the benefits to the community provided by St. Margaret Mercy. The Summary showed that the cost for the total benefits for the year 2000 was in excess of $26 million. Id. St. Margaret Mercy calculated the cost of those benefits to be 11.65% of its total expenses. See St. Margaret Mercy Healthcare Ctrs., Inc. FACTORS CONSIDERED Viability of the Physician Practice and Hospital Necessary
to hospitals viability? St. Margaret Mercy established that the physician practices generated significant referrals to its inpatient facilities in 2000. Moreover, the physician practices contributed substantial revenue that supported the inpatient facilities. In fact, the evidence suggests that without the patient referrals and financial contribution of the physicians practices, St. Margaret Mercys inpatient facilities may not have remained financially viable and may not have continued to exist. See St. Margaret Mercy Healthcare Ctrs., Inc. FACTORS CONSIDERED
Entangling and co-mingling activities with for-profit entities Probably not substantially related to or supportive of Paying executives unreasonably high salaries Probably not substantially related to or supportive of Suggests motive is profit rather than benevolence NOT SUBSTANTIALLY RELATED TO OR SUPPORTIVE OF Charity
Care? "the unreimbursed cost to a hospital of providing, funding, or otherwise financially supporting health care services." I.C. 16-18-2-52.5. Community Benefits? "the unreimbursed cost to a hospital of providing charity care, government sponsored indigent health care, donations, education, government sponsored program services, research, and subsidized
health services." I.C. 16-21-9-1. CHARITY CARE AND COMMUNITY BENEFITS Although the statute does not specify a minimum amount of charity care and community benefit necessary to qualify for exemption, there must be some meaningful contribution such that the taxpayer must demonstrate that it provides a present benefit to the general public . .. sufficient to justify the loss of tax revenue." St. Marys Med. Ctr. of Evansville, Inc. v. State Bd. of Tax Comm'rs, 534 N.E.2d 277, 279 (Ind. Tax Ct.
1989) (aff'd. 571 N.E. 2d (Ind. 1991)). FACTORS CONSIDERED Charity Care Policy/Mission Statement alone NOT enough True implementation of such policy Requiring a form employment contract showing that the hospital's employed physicians are required to see any and all patients present without regard to their financial ability to pay Possibly
enough FACTORS CONSIDERED Indigent Care and No-Cost Community Wellness Programs Here, the Petitioner has a policy that grants indigent allowances or hardship adjustments to patients who are incapable of paying their personal medical care and unable to qualify for financial assistance through federal and state government assistance programs. Goshen Hospital has a sliding scale fee schedule indexed to the federal poverty guidelines for the indigent allowances or hardship adjustments[and] conducts no-cost community wellness programs. Goshen
Hosp. Ass'n, Inc. v. LaGrange Cnty. Assessor, Pet. No. 44014-10-2-8-00001, p. 11, 38 (Ind. Bd. Tax Rev. 2013). FACTORS CONSIDERED % of Benefits Compared to Hospitals Total Expenses/Debt Just Bad Debt? Charity generally applies to patients with a demonstrated inability to pay for necessary services; Bad
debt generally refers to patients that could pay without assistance, but are unwilling to do so. ADDITIONAL CONSIDERATIONS Location Medical office close to a hospital and owned by it: Does not mean the office buildings are reasonably necessary for the maintenance of the hospital's charitable purposes. Petitioners also suggest that the close proximity of the office
buildings to the hospital greatly enhances the level of care for the hospital's patients. There is no doubt that such a location is convenient for the dentists and doctors. However, in order to reach the conclusion that the office buildings are reasonably necessary for the maintenance of St. Mary's charitable purposes the resulting benefit from the use of the buildings must inure to the public. See St. Mary's, 534 N.E. 2d at 280. NURSING HOMES Charitable Purposes Exemption To qualify for a charitable purposes exemption, a taxpayer must show relief of human want ... manifested by obviously charitable acts different from the everyday
purposes and activities of man in general. Nursing home facility with 40 apartments, a central dining room, laundry rooms, a beauty salon, and several common areas. NOT exempt Tipton County Health Care Foundation, Inc. f/k/a Tipton County Memorial Hospital Foundation v. Tipton County Assessor, 961 N.E.2d 1048 (Tax Ct. of Ind. 2012). NURSING HOMES CONTD
Foundation failed to establish that public benevolence was the reason for its operation Mission statement on website read more like an advertisement The mission of Miller's ... is to be an active presence in the communities we serve. We will specialize in delivering the highest quality of services to those in need. We will treat all individuals with integrity, compassion, and respect. Our goals are to enjoy work, grow in our professional and personal lives, and make a positive difference for those we serve. Id. See Tipton County Health Care Foundation, Inc. f/k/a Tipton County Memorial Hospital Foundation. Newest Trend in Nursing Homes
Health & Hospital Corporation (HHC) American Senior Communities Marion County Hospital is partnering with nursing homes all over the state with Management Agreements to run the homes, and then they are claiming Government Exempt (I.C. 6-1.1-11-4) for the personal property only in the facilities. Exemption for Other Purposes In order to qualify for an exemption the taxpayer must demonstrate that its property is owned for
exempt purposes, occupied for exempt purposes, and predominately used for exempt purposes[W]hen a unity of ownership, occupancy, and use is lacking (as is the case here), both entities must demonstrate that they possess their own exempt purposes. Hamilton County Property Tax Assessment Bd. of Appeals v. Oaken Bucket Partners, LLC, 938 N.E.2d 654, 657 (Ind. 2010). APPLICATION OF CHARITABLE PURPOSES EXEMPTION The exemption only applies to the part of the building that is owned, occupied, and used for charitable purposes." A
taxpayer must also show that the charitable purpose is the property's predominant use. Indianapolis Osteopathic Hosp., Inc. v. DLGF, 818 N.E.2d 1009 (Ind. Tax Ct. 2004) (emphasis added). CHARITABLE AND/OR RELIGIOUS PURPOSE More on Oaken Bucket Oaken Bucket sought a charitable and religious purposes exemption on the portion of its building leased to Heartland.
Oaken Bucket attempted to demonstrate its entitlement to an exemption by introducing evidence that its lessee, Heartland, was a non-denominational church using that portion of the building for a religious and charitable purpose. [A]n owner of leased property must provide evidence that it possesses an exempt purpose separate and distinct from the exempt purpose of its lessee. CHARITABLE AND/OR RELIGIOUS PURPOSE Hamilton County Assessor v. SPD Realty, LLC, 9 N.E.3d 773, 778 (Ind. Tax Ct. 2014). Court
concluded that the taxpayer owned the property for a charitable purpose and was therefore entitled to the exemption. [T]he administrative record reveals that the same individuals that created and own New Life created and own SPD. There, unlike in Oaken Bucket, SPD was formed for the sole purpose of acquiring and renting the subject property to New Life in furtherance of its charitable tissue bank operations. EDUCATIONAL PURPOSE Purpose of the educational exemption concerning property taxes is to encourage non-governmental entities to provide educational services for the public
welfare If a property owner's use of property does not serve the public good, the property does not qualify for the exemption. EDUCATIONAL PURPOSE Travelers Insurance Co. v. Kent, 50 N.E. 562 (1898). The mere use or occupancy for school or educational purposes of the property of a private owner, sustaining merely the relation of lessor to a school or seminary, does not create an exemption in his favor.
Despite the acceptance of this position for more than 115 years, this issue is still disputed. EARLY CHILDHOOD EDUCATION Johnson County PTABOA v. KC Propco LLC, 28 N.E.3d 370 (Ind. Tax Ct. 2015). Taxpayer may meet its burden by showing that it provides the public with either the same educational training that would otherwise be furnished by our tax-supported schools or that it provides educational courses that are related to those found in tax-supported public schools but not necessarily provided by them.
While some non-educational activities did in fact occur at the Greenwood KinderCare, those activities did not diminish the property's overall educational use. LEASE Impact of a Lease? It is not enough to lease and primarily use the property for a religious, charitable, educational, etc. purpose. The property must be owned for such purpose. See
Oaken Bucket; and See Travelers Insurance. BELOW MARKET RENT Charging below market rent to an exempt entity does not, without more, establish an exempt purpose on the part of the property owner. [A]ssuming the evidence uncontrovertibly showed that Oaken Bucket charged Heartland below market rent, that fact alone would have little bearing on the question of whether Oaken Bucket possessed its own exempt purposes. Stated somewhat differently, where an entity charges below market rent to a charitable or religious
organization, this may demonstrate some indicia of the entity's beneficent motives. But more is required to show that the entity possesses its own exempt purposes. See Oaken Bucket FRATERNAL PURPOSES EXEMPTION Fraternal Order of Eagles v. Morgan County PTABOA, 5 N.E.3d 1195 (Ind. Tax Ct. 2014) Exemption for Preservation of Natural Characteristics IC 6-1.1-10-16(c)(3) exempts a tract of land from property tax if it is owned by a nonprofit entity established for the purpose of
retaining and preserving land and water for their natural characteristicsdoes not exceed five hundred (500) acres; and is not used by the nonprofit entity to make a profit. Marineland Gardens Community Assn, Inc. v. Kosciusko County Assessor, 26 N.E.3d 1087 (Ind. Tax Ct. 2015) (Despite being used for recreational activities such as walking, fishing, and boating, Marineland did not explain how its evidence indicates that it was established for the purpose of retaining and preserving the land and water for its natural characteristics.) DARK BOX PROBLEM What is a Big Box? A high-volume retail store that occupies a large amount of physical space and generally offers a wide
variety of products to consumers What is a Dark Box? A vacant big box The Problem in a Nutshell Indiana assessing officials want to ensure that big-box retailers pay their fair share of taxes. But, big box retailers continue to use vacant, abandoned stores as comparables.
Assessing officials do not believe these vacant abandoned stores are valid comparables. The Debate Big Box Position Big Box stores are becoming obsolete because consumers are shifting to online shopping, and large chains are experimenting with smaller store designs. Assessor Position Consumers still spend significantly more per month in
physical stores than online. The Census Bureau shows that online sales represent just 7% of total retail sales nationwide. While big-box retailers are experimenting with some smaller store designs, these retailers continue to build 100,000+ square foot stores. The Debate Big Box Position Sales of occupied big-box stores usually involve sale-leaseback transactions where investors
care more about the creditworthy tenant than real estate. Assessor Position Property rights adjustments can be made for any inadvertently captured leased-fee interest. Moreover, sales of occupied stores often represent the only sale of first-generation big-box stores. The Debate Big Box Position Fee-simple value is best reflected by sales of dark boxes because those properties are not
encumbered by leases. Assessor Position A big-box retailers abandonment of a store indicates that there is probably no market support for that use. A failed store often results in a change of its highest and best use. Competitors are often restricted from purchasing or leasing these properties because of deed restrictions. The Debate Big Box Position The highest and best use of a
successful operating store is no different than the highest and best use of a dark box. Assessor Position If one were appraising an operating first-generation store, the most comparable sales would be other successful operating big-box stores, which are typically represented by saleleaseback transactions. The Debate Big Box Position Considering the business success of an operating store is
inappropriate; therefore, dark boxes should be used as comparables to avoid valuing the business. Assessor Position We are all familiar with that certain store that fails over and over again, no matter who occupies it. The continued failure casts doubt on the viability of that use at that location. On the other hand, the continued use and success of a store would tend to indicate that the property is operating at its highest and best use.
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