Case Title: Covenant Healthcare Sys., Inc. v. City of Wauwatosa

Citation: 2011 WI 80

Docket Number: 2009AP001470

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2011-07-19T00:00:00Z

Document:
2011 WI 80 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2009AP1469 and 2009AP1470 
COMPLETE TITLE: 
 
Covenant Healthcare System, Inc., 
          Plaintiff-Respondent-Petitioner, 
     v. 
City of Wauwatosa, 
          Defendant-Appellant. 
 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at: 329 Wis. 2d 393, 791 N.W. 2d 205 
(Ct. App. 2010 – Published) 
 
 
OPINION FILED: 
July 19, 2011   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
April 15, 2011 
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee   
 
JUDGE: 
Elsa C. Lamelas 
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
ABRAHAMSON, C. J. dissents (Opinion filed).   
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiff-respondent-petitioner there were briefs 
by Don M. Millis, Kristina E. Somers, and Reinhart Boerner Van 
Deuren S.C., Madison, and oral argument by Don M. Millis. 
 
For the defendant-appellant there was a brief by Robert 
Horowitz and Stafford Rosenbaum, L.L.P., Madison, Alan R. 
Kesner, city attorney and Beth Thorson Aldana assistant city 
attorney, Wauwatosa and oral argument by Robert Horowitz. 
 
There was an amicus brief by Jennifer A. Slater Carlson and 
Legal Advantage, L.L.C., Cedarburg on behalf of Association of 
Assessing Officers. 
 
 
 
2
There were amicus briefs by Beth Ermatinger Hanan and 
Chrispother P. Dombrowicki and Gass Weber Mullins, L.L.C., 
Milwaukee on behalf of Attorneys for Rural Wisconsin Heath 
Cooperative. 
 
There was an amicus brief by Claire Silverman, Legal of 
Wisconsin Municipalities, Madison on behalf of League of 
Wisconsin Municipalities. 
 
There were amicus briefs by David J. Edquist and von 
Breisen & Roper, S.C., Milwaukee on behalf of Attorneys for the 
Wisconsin Hospital Association. 
 
 
 
2011 WI 80
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2009AP1469 & 2009AP1470 
(L.C. No. 
2004CV6458 & 2006CV5558) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Covenant Healthcare System, Inc., 
 
 
          Plaintiff-Respondent-Petitioner, 
 
     v. 
 
City of Wauwatosa, 
 
          Defendant-Appellant. 
 
 
 
FILED 
 
JUL 19, 2011 
 
A. John Voelker 
Acting Clerk of Supreme 
Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
 
¶1 
MICHAEL J. GABLEMAN, J.   This is a review of a 
published decision of the court of appeals1 that reversed the 
judgment and order of the circuit court for Milwaukee County, 
the Honorable Elsa C. Lamelas presiding, in favor of Covenant 
Healthcare System, Inc. (Covenant).  Covenant is the sole member 
of the St. Joseph Regional Medical Center, Inc., (St. Joseph) 
which in turn owns the St. Joseph Outpatient Clinic (Outpatient 
Clinic).  In 2003, Covenant constructed a five-story building in 
                                                 
1 Covenant Healthcare System, Inc. v. City of Wauwatosa, 
2010 WI App 125, 329 Wis. 2d 393, 791 N.W.2d 205. 
No. 
2009AP1469 & 2009AP1470   
 
2 
 
the City of Wauwatosa (the City) to house the Outpatient Clinic.  
The Outpatient Clinic provides a broad range of outpatient 
medical services, including a 24-hour urgent care center. 
¶2 
Covenant filed timely Property Tax Exemption Requests 
with the City in each year from 2003 to 2006.  Covenant sought a 
tax exemption for the Outpatient Clinic as property used 
exclusively for the purpose of a hospital under Wis. Stat. 
§ 70.11(4m)(a) 
(2007-08).2  The city assessor denied the 
exemption for each of these four years and Covenant paid the 
assessed tax.  Covenant then brought an action pursuant to Wis. 
Stat. § 74.35(3)(d) to recover the amount of the City's 
allegedly unlawful assessment.  The City primarily argued that 
the Outpatient Clinic was a doctor's office, and therefore was 
not entitled to the property tax exemption under § 70.11(4m)(a).  
In the alternative, the City argued that the Outpatient Clinic 
was not exempt because it was used for commercial purposes and 
because a benefit inured to St. Joseph's sole member, Covenant. 
¶3 
We hold that the Outpatient Clinic is used for the 
primary purposes of a hospital and therefore qualifies as tax-
exempt property under Wis. Stat. § 70.11(4m)(a).  Additionally, 
we hold that the Outpatient Clinic is neither a doctor's office 
nor a property used for commercial purposes within the meaning 
of § 70.11(4m)(a).  Finally, we conclude that no benefit inures 
                                                 
2 All subsequent references to the Wisconsin Statutes are to 
the 2007-08 version unless otherwise indicated. 
No. 
2009AP1469 & 2009AP1470   
 
3 
 
to any member of St. Joseph because the term "member" under 
§ 70.11(4m)(a) does not include not-for-profit entities. 
I.  BACKGROUND 
¶4 
We draw our facts from the extensive factual findings 
made by the circuit court after it conducted a nine-day bench 
trial on the issues we now review. 
A.  St. Joseph Outpatient Clinic 
¶5 
The Outpatient Clinic is a freestanding outpatient 
medical facility located in the City.  The Outpatient Clinic was 
owned and operated by St. Joseph from 2003 through 2006, the tax 
years in dispute.  Covenant is the sole member of St. Joseph.3 
¶6 
In 2003, Covenant constructed a five-story building to 
house the Outpatient Clinic and transferred ownership of the 
building and improvements to St. Joseph.  Covenant continued to 
own the land on which the building was located but leased it to 
St. Joseph.  The Outpatient Clinic is located on three of the 
five floors: the first, third, and fourth.  St. Joseph leased 
the second floor to the Covenant Medical Group, Inc., and leased 
the fifth floor to various physicians and other medical 
providers.  Covenant seeks property tax exemptions for only the 
three floors occupied by the Outpatient Clinic. 
                                                 
3 At all times pertinent to this action Covenant was an 
Illinois not-for-profit corporation.  Covenant's two members, 
Wheaton Franciscan Services, Inc., and Felician Services, Inc., 
are both Illinois not-for-profit corporations.  Covenant has 
been known as Wheaton Franciscan Healthcare-Southeast Wisconsin, 
Inc., since July 1, 2006. 
No. 
2009AP1469 & 2009AP1470   
 
4 
 
¶7 
The Outpatient Clinic was constructed to significantly 
higher standards than a typical medical office building.  It was 
constructed in conformity with the standards imposed by the 
Wisconsin 
Department 
of 
Health 
and 
Family 
Services 
for 
facilities that provide hospital ambulatory services.4 The 
Outpatient Clinic operated under a hospital license.  It was 
accredited by the Joint Commission on the Accreditation of 
Hospitals, an organization that does not accredit physician 
clinics.  St. Joseph purchased all of the equipment necessary to 
provide outpatient services at the Outpatient Clinic, and the 
equipment is used exclusively by the Outpatient Clinic. 
¶8 
The Outpatient Clinic has a gift shop as well as a 
cafeteria that serves food to patients, visitors, and staff.  
Space within the Outpatient Clinic is available for community 
use, as well as internal education and support groups, such as 
pregnancy education classes.  A separate parking structure and 
surface parking areas are adjacent to the Outpatient Clinic, but 
not connected to the Outpatient Clinic building. 
¶9 
The outpatient services provided at the Outpatient 
Clinic include: cardio/pulmonary services, continence and pelvic 
floor5 services, laboratory services, outpatient surgery, pain 
                                                 
4 "Ambulatory care" is any medical care that is delivered on 
an outpatient basis.  Outpatient care refers to medical care for 
patients who do not need to stay overnight in the medical 
facility.  Outpatient care can include day surgery and other day 
services. 
5 The pelvic floor is a muscular partition at the base of 
the abdomen, attached to the pelvis.  See Churchill Livingstone 
Medical Dictonary 364 (16th ed. 2008). 
No. 
2009AP1469 & 2009AP1470   
 
5 
 
management services, pediatric rehabilitation, physical therapy, 
radiology, sleep disorder services, women's health services, and 
wound care services.6 
¶10 The Outpatient Clinic has an urgent care center 
(Outpatient Clinic Urgent Care Center) staffed by board-
certified emergency department physicians and nurses.  The 
Outpatient Clinic Urgent Care Center is operated 24 hours a day, 
seven days a week.  The Outpatient Clinic Urgent Care Center is 
complemented by a laboratory services department, also located 
within 
the 
Outpatient 
Clinic. 
 
The 
laboratory 
services 
department is also operated 24 hours a day, seven days a week.  
The Outpatient Clinic Urgent Care Center contains 18 beds which 
could be used as overnight beds in the case of a pandemic, 
epidemic, natural or man-made disaster.  In the event of such an 
emergency, the Outpatient Clinic is prepared to house up to 45 
patients overnight.  The Outpatient Clinic Urgent Care Center, 
pursuant to the Emergency Medical Treatment and Active Labor 
Act, 42 U.S.C. § 1395dd, may not turn anyone away based on 
inability to pay. 
                                                 
6 Many of these outpatient services were previously offered 
by St. Joseph through the St. Joseph Ambulatory Care Center.  In 
1996, St. Joseph converted Lakeview Hospital——an inpatient 
hospital on Bluemound Road in Wauwatosa——to an outpatient 
medical facility (St. Joseph Bluemound Outpatient Hospital).  
The City's assessor was informed of this change in 1996, but 
continued to treat St. Joseph Bluemound Outpatient Hospital as 
tax-exempt until the services were moved to the Outpatient 
Clinic in 2003. 
No. 
2009AP1469 & 2009AP1470   
 
6 
 
¶11 The Outpatient Clinic Urgent Care Center treats all 
levels of emergency room care, but patients with more serious 
conditions are stabilized and then transferred to a different 
medical facility.  Patients who visit the Outpatient Clinic 
Urgent Care Center are charged emergency room rates.  The most 
common conditions treated by the Outpatient Clinic Urgent Care 
Center are broken bones, injuries requiring sutures, sprains and 
strains, accidents and falls, asthma, allergy attacks, eye 
injuries, rashes, minor burns, colds, and flu. 
¶12 The Outpatient Clinic does not provide inpatient care.  
The circuit court's findings of fact explain that the Outpatient 
Clinic does keep patients overnight in the sleep laboratory, but 
those patients are not considered inpatients.  Apart from the 
Outpatient Clinic Urgent Care Center, all services normally 
require referrals and appointments during regular business 
hours.  Physicians performing services at the Outpatient Clinic 
may use open cubicles as temporary workspace, but workspace is 
not designated or assigned to individual physicians. 
B.  St. Joseph Hospital 
¶13 In addition to the Outpatient Clinic, St. Joseph 
operates St. Joseph Hospital, a full-service hospital with 550 
to 600 inpatient beds located on Chambers Street (the St. Joseph 
Chambers Street Hospital).  The St. Joseph Chambers Street 
Hospital serves Milwaukee's inner city and its western suburbs, 
and is located approximately five miles from the Outpatient 
Clinic.  It is undisputed that the St. Joseph Chambers Street 
No. 
2009AP1469 & 2009AP1470   
 
7 
 
Hospital 
is 
a 
tax-exempt 
hospital 
under 
Wis. 
Stat. 
§ 70.11(4m)(a). 
¶14 St. Joseph constructed the Outpatient Clinic with a 
desire to move services away from the St. Joseph Chambers Street 
Hospital.  There were a variety of reasons for this: to relieve 
parking difficulties at the St. Joseph Chambers Street Hospital, 
to free up space for outpatient services at the St. Joseph 
Chambers Street Hospital, to reduce diversion of ambulances to 
the St. Joseph Chambers Street Hospital and other hospital 
emergency rooms, to provide medical services that cover the 
lifespan of women in one location, to improve efficiency and 
reduce the footsteps required of nurses when providing medical 
services, 
to 
facilitate recruitment of physicians through 
convenient highway access and parking, and to provide hyperbaric 
chambers care for which the St. Joseph Chambers Street Hospital 
lacked space.  Additionally, St. Joseph hoped to facilitate 
recruitment of nurses and address nursing shortages because 
nurses at the Outpatient Clinic would not be on call after hours 
or on weekends (in contrast to the outpatient surgery nurses at 
the St. Joseph Chambers Street Hospital who were on call after 
hours as well as on the weekends).7 
¶15 The St. Joseph Chambers Street Hospital has a number 
of features that are integrated with the services offered at the 
                                                 
7 There is some overlap between the outpatient services 
available at the St. Joseph Chambers Street Hospital and the 
Outpatient Clinic.  The record does not detail the extent of 
this overlap. 
No. 
2009AP1469 & 2009AP1470   
 
8 
 
Outpatient Clinic.  All hospital and outpatient records are 
accessible at both locations, and the facilities share an online 
registration system.  The same four physician groups provide 
radiology, anesthesiology, pathology (laboratory), and urgent 
care services at both locations.  They also share the same 
billing system and operate under the same hospital license.  
Patients and/or insurance providers pay a facility fee for use 
of the Outpatient Clinic or the St. Joseph Chambers Street 
Hospital. 
 
Both 
locations 
share 
department 
heads 
and 
administrators at each facility are routinely on call at the 
other facility. 
¶16 Physicians with privileges at the Outpatient Clinic or 
the St. Joseph Chambers Street Hospital work with nurses and 
other staff employed by St. Joseph, but do not employ or 
supervise these nurses and staff members.  Physicians at both 
facilities have their own practices and are not employed by St. 
Joseph.  The physicians at both facilities typically issue a 
bill for their professional services that is separate from the 
facility fee charged by St. Joseph. 
II.  PROCEDURAL HISTORY 
¶17 Covenant filed timely Property Tax Exemption Requests 
with the City of Wauwatosa in each year from 2003 to 2006.  
Covenant claimed property tax exemptions for both the Outpatient 
Clinic building and the land on which the building is located.  
The city assessor denied the property tax exemption for each of 
these four years and Covenant paid the assessed tax. 
No. 
2009AP1469 & 2009AP1470   
 
9 
 
¶18 Covenant brought an action pursuant to Wis. Stat. 
§ 74.35(3)(d) to recover the amount of the City's allegedly 
unlawful assessment.  The circuit court conducted a nine-day 
bench trial and, after extensive findings of fact, concluded 
that the Outpatient Clinic was exempt from taxation as a 
property used exclusively for the purposes of a hospital 
pursuant to Wis. Stat. § 70.11(4m)(a). 
¶19 On appeal, the court of appeals reversed, holding that 
the Outpatient Clinic was a doctor's office and therefore not 
eligible for the property tax exemption found in Wis. Stat. 
§ 70.11(4m)(a). 
¶20 We granted review on December 7, 2010, and now reverse 
the decision of the court of appeals. 
III.  STANDARD OF REVIEW 
¶21 This case involves the interpretation of the property 
tax exemption statute for not-for-profit hospitals, found in 
Wis. Stat. § 70.11(4m)(a).  The interpretation of a statute is a 
question of law that we review de novo.  Hocking v. City of 
Dodgeville, 2010 WI 59, ¶17, 326 Wis. 2d 155, 785 N.W.2d 398.  
Whether the undisputed facts as found by the circuit court 
satisfy the statutory standard is also a question of law that we 
review de novo.  St. Clare Hosp. v. City of Monroe, 209 
Wis. 2d 364, 368-69, 563 N.W.2d 170 (Ct. App. 1997). 
IV.  DISCUSSION 
¶22 In Wisconsin, all property is subject to taxation 
unless specifically exempt.  See Wis. Stat. § 70.01.  The burden 
of showing that a property is exempt from taxation is on the 
No. 
2009AP1469 & 2009AP1470   
 
10 
 
party seeking exemption.  Sisters of St. Mary v. City of 
Madison, 89 Wis. 2d 372, 379, 278 N.W.2d 814 (1979).  Tax 
exemption statutes are to be strictly construed against granting 
an exemption.  St. Clare Hosp., 209 Wis. 2d at 369.  A strict 
construction, however, does not mean we give the statute the 
narrowest possible reading or an unreasonable construction.  
Columbia Hosp. Ass'n v. City of Milwaukee, 35 Wis. 2d 660, 668, 
151 N.W.2d 750 (1967).  Therefore, we apply a "strict but 
reasonable" interpretation to tax exemption statutes.  Id. 
¶23 This case requires us to determine whether the 
Outpatient Clinic qualifies for the exemption set forth in Wis. 
Stat. 
§ 70.11(4m)(a), 
which 
exempts 
real 
property 
"used 
exclusively for the purposes of any hospital of 10 beds or more 
devoted primarily to the diagnosis, treatment or care of the 
sick, injured, or disabled."8  This requires us to consider four 
                                                 
8 Wis. Stat. § 70.11(4m)(a), stated in full, exempts: 
Real property owned and used and personal property 
used exclusively for the purposes of any hospital of 
10 beds or more devoted primarily to the diagnosis, 
treatment or care of the sick, injured, or disabled, 
which hospital is owned and operated by a corporation, 
voluntary association, foundation or trust, except an 
organization that is organized under s. 185.981 or ch. 
611, 613 or 614 and that offers a health maintenance 
organization as defined in s. 609.01 (2) or a limited 
service health organization as defined in s. 609.01 
(3) or an organization that is issued a certificate of 
authority under ch. 618 and that offers a health 
maintenance organization or a limited service health 
organization, no part of the net earnings of which 
inures to the benefit of any shareholder, member, 
director or officer, and which hospital is not 
operated principally for the benefit of or principally 
No. 
2009AP1469 & 2009AP1470   
 
11 
 
issues: (A) whether the Outpatient Clinic is used for the 
purposes of a hospital and therefore qualifies for the exemption 
under § 70.11(4m)(a); (B) whether the Outpatient Clinic is a 
doctor's 
office 
and 
therefore 
is 
not 
exempt 
under 
§ 70.11(4m)(a); (C) whether the Outpatient Clinic is used for 
commercial 
purposes 
and 
therefore 
is 
not 
exempt 
under 
§ 70.11(4m)(a); (D) whether a benefit inured to Covenant and 
therefore 
the 
Outpatient 
Clinic 
is 
not 
exempt 
under 
§ 70.11(4m)(a). 
A.  Exclusive Use of the Outpatient Clinic 
 ¶24 In order to qualify for the not-for-profit hospital 
exemption, a property must be "used exclusively for the 
purpose[] of [a] hospital . . . ."  Wis. Stat. § 70.11(4m)(a).  
The parties do not dispute that the St. Joseph Chambers Street 
Hospital qualifies as an exempt hospital property.9  The issue 
here is whether the Outpatient Clinic is exempt property even 
                                                                                                                                                             
as an adjunct of the private practice of a doctor or 
group of doctors. This exemption does not apply to 
property used for commercial purposes, as a health and 
fitness center or as a doctor's office. The exemption 
for 
residential 
property 
shall 
be 
limited 
to 
dormitories of 12 or more units which house student 
nurses enrolled in a state accredited school of 
nursing affiliated with the hospital. 
 
9 The circuit court found that the St. Joseph Chambers 
Street Hospital is "a full-service large acute care hospital 
with 550 to 600 inpatient beds serving Milwaukee's inner city 
and its western suburbs." 
No. 
2009AP1469 & 2009AP1470   
 
12 
 
though it is located off-site five miles from the St. Joseph 
Chambers Street Hospital.10 
¶25 When an off-site facility is engaged in the primary 
purpose of the parent hospital we examine only whether the off-
site facility is "used exclusively for the purposes of" that 
hospital.  Wis. Stat. § 70.11(4m)(a).11  Specifically, we now 
                                                 
10 The City argues that the circuit court's finding that 
66.07% of the total parking space was reserved for use by the 
Outpatient Clinic's patients and staff was clearly erroneous.  
The City also argues that the circuit court never found that the 
42,000 square feet of public space contained in the Outpatient 
Clinic building was used exclusively for the Outpatient Clinic.  
The circuit court, however, exempted the public space in the 
Outpatient Clinic building based on the floors occupied by the 
Outpatient Clinic.  The City ignores our prior decisions which 
allow for exemptions to be allocated based on percentage of 
exempt use.  Deutsches Land, Inc. v. City of Glendale, 225 
Wis. 2d 70, 83-84, 591 N.W.2d 583 (1999); Alonzo Cudworth Post 
No. 23 v. City of Milwaukee, 42 Wis. 2d 1, 13-16, 165 N.W.2d 397 
(1969); 
Columbia 
Hosp. 
Ass'n 
v. 
City 
of 
Milwaukee, 
35 
Wis. 2d 660, 675, 151 N.W.2d 750 (1967).  It was reasonable for 
the circuit court to exempt the public space on the three floors 
on which the Outpatient Clinic operated and to exempt a 
proportional share of the parking spaces. 
11 We 
first considered whether off-site hospital-owned 
facilities 
could 
qualify 
as 
exempt 
property 
in 
Columbia 
Hospital, 35 Wis. 2d 660.  In Columbia Hospital, we held that 
hospital-owned 
residences for intern and resident doctors 
located two miles from the hospital qualified as exempt 
property.  Id. at 675.  We concluded that the proximity of these 
residences to the hospital was not the appropriate test under 
the statute.  Id. at 673.  Rather, we held that the exemption 
should apply to off-site facilities of "reasonable necessity to 
the efficient functioning of the hospital as an organization."  
Id. at 671.  We reasoned that attracting qualified intern and 
resident doctors was of reasonable necessity to the efficient 
functioning of Columbia Hospital.  Id. at 673-74. 
No. 
2009AP1469 & 2009AP1470   
 
13 
 
examine whether the Outpatient Clinic is used exclusively for 
the primary purposes of the St. Joseph Chambers Street Hospital. 
¶26 The circuit court found that "St. Joseph embarked on 
the Outpatient Clinic project because of genuine limitations 
confronting [the St. Joseph Chambers Street Hospital] in the 
delivery of medical services."  One purpose of the Outpatient 
Clinic's construction was to reduce the diversion hours at the 
St. Joseph Chambers Street Hospital by rerouting less serious 
emergencies to the Outpatient Clinic Urgent Care Center.  
Diversion occurs when emergency rooms reach capacity and can 
accept no more ambulances.  The record demonstrates that the 
Outpatient Clinic Urgent Care Center has substantially reduced 
the diversion hours at the St. Joseph Chambers Street Hospital.  
From July 2001 to June 2003, the St. Joseph Chambers Street 
Hospital averaged 53.74 diversion hours per month.  The 
Outpatient Clinic Urgent Care Center opened in July 2003.  From 
                                                                                                                                                             
We again applied the "reasonable necessity" test in Sisters 
of St. Mary, 89 Wis. 2d 372, 278 N.W.2d 814 (1979).  In that 
case, we held that a single-family residence owned by a 
religious order and used exclusively as the residence of a full-
time chaplain for a not-for-profit hospital was reasonably 
necessary to the efficient functioning of St. Mary Hospital.  
Id. at 383-84. 
Both Sisters of St. Mary and Columbia Hospital applied the 
reasonable necessity test to facilities which were secondary to 
the hospitals' primary purpose of diagnosing, caring, and 
treating the sick, injured, and disabled, and yet concluded the 
facilities should be tax-exempt.  In this case, the Outpatient 
Clinic is not a facility engaged in a secondary purpose, such as 
housing resident doctors.  Instead, the Outpatient Clinic is 
engaged in St. Joseph's primary purpose——caring for the sick. 
No. 
2009AP1469 & 2009AP1470   
 
14 
 
July 2003 to June 2007, the number of diversion hours dropped to 
9.18 hours per month.  This is an 83% reduction in the average 
diversion hours at the St. Joseph Chambers Street Hospital.  
Such a reduction in diversion hours advances the primary purpose 
of the St. Joseph Chambers Street Hospital by expanding the 
availability of its emergency room to receive patients. 
 
¶27 The circuit court found that another purpose of the 
Outpatient 
Clinic's 
construction 
was 
to 
house 
hyperbaric 
chambers.  No space was available at the St. Joseph Chambers 
Street Hospital to provide hyperbaric chambers care.  Three 
patients from the St. Joseph Chambers Street Hospital were 
transported to the Outpatient Clinic to use this system in 2004, 
one in 2005, and three in 2006.  The circuit court found that 
the Outpatient Clinic fulfilled the primary purpose of the St. 
Joseph Chambers Street Hospital in a variety of other ways: 
freeing up space for outpatient services, delivering services 
more conveniently and efficiently, creating a single unit to 
address the special health needs of women throughout their 
lives, and providing the most modern facilities and equipment 
for patients, visitors, and staff. 
¶28 In fulfilling this primary purpose, the circuit court 
found that the Outpatient Clinic's systems are fully integrated 
with the St. Joseph Chambers Street Hospital.  Patient medical 
and pharmaceutical records can be accessed at both facilities.  
The same billing system is used at both facilities.  Departments 
at both facilities are generally led by the same person.  Both 
facilities operate under the same hospital license.  The same 
No. 
2009AP1469 & 2009AP1470   
 
15 
 
four 
physician 
groups 
provide 
radiology, 
anesthesiology, 
pathology, and urgent care services at both locations. 
¶29 The 
circuit court concluded that the Outpatient 
Clinic, as designed, constructed, and operated, addressed 
limitations and goals that could not be addressed or satisfied 
within the physical confines of the St. Joseph Chambers Street 
Hospital.  We agree with the circuit court that the Outpatient 
Clinic effectively serves as a department of the larger St. 
Joseph Chambers Street Hospital.  In light of this, we conclude 
that the Outpatient Clinic is used exclusively for the purposes 
of a hospital——the St. Joseph Chambers Street Hospital——and 
therefore qualifies for the property tax exemption under Wis. 
Stat. § 70.11(4m)(a).12 
B.  Doctor's Office 
¶30 We 
next 
consider 
whether 
the 
Outpatient 
Clinic 
qualifies as a "doctor's office" as that term is used under Wis. 
Stat. § 70.11(4m)(a).  If the Outpatient Clinic is a doctor's 
                                                 
12 The City argues that our holding would exempt every off-
campus hospital-owned clinic statewide, and thus substantially 
erode municipal tax bases.  This slippery slope argument, 
however, fails to take into account that owners of such clinics 
still bear the burden of establishing that those clinics are not 
doctor's offices and that they are not used for commercial 
purposes.  Once this is established, the owner bears an 
additional burden of establishing that the off-campus clinic is 
used for the primary purpose of the parent hospital.  We base 
our holding in this case on the 212 factual findings made by the 
circuit court.  These extensive findings convince us that 
Covenant has met its burden to prove that the Outpatient Clinic 
is not a doctor's office, that the Outpatient Clinic is not used 
for commercial purposes, and that the Outpatient Clinic meets 
the statutory criteria for exemption. 
No. 
2009AP1469 & 2009AP1470   
 
16 
 
office, then it does not qualify for a tax exemption.  Id.  
Covenant bears the burden of establishing that the Outpatient 
Clinic is not a doctor's office.  St. Elizabeth Hosp., Inc. v. 
City of Appleton, 141 Wis. 2d 787, 791, 416 N.W.2d 620 (Ct. App. 
1987). 
¶31 The simplest definition of "doctor's office," as the 
court of appeals recognized in St. Clare Hospital, is "the 
building where doctors have their offices."  209 Wis. 2d at 373.  
This definition provides a helpful starting point, but "whether 
a building is used as a doctor's office depends on the nature of 
services provided and the manner in which these services are 
delivered to the patient."  Id. (internal quotation omitted).  
The determination of whether property is used as a doctor's 
office ultimately turns on the facts of each case.  Id. at 372. 
¶32 While we are required to strictly construe tax 
exemption statutes in favor of taxation, the statute need not be 
given an unreasonable construction or the narrowest possible 
construction.  Columbia Hosp., 35 Wis. 2d at 668.  Moreover, it 
should not be so strictly construed as to defeat the legislative 
intent of creating the exemption——here, to encourage not-for-
profit hospitals to provide care for the sick.  See St. Clare 
Hosp., 209 Wis. 2d at 369. 
¶33 The City argues that we should consider only the 
factors that can be perceived by an ordinary patient when we 
determine whether the Outpatient Clinic is a doctor's office.  
While the City's argument has the allure of simplicity, we 
conclude its limited approach improperly overlooks pertinent 
No. 
2009AP1469 & 2009AP1470   
 
17 
 
case law.  The decisions of the court of appeals in St. Clare 
Hospital and St. Elizabeth Hospital illustrate the broad range 
of factors that have been considered relevant in determining 
whether a medical facility qualifies as a doctor's office.13    
¶34 Our 
appellate courts first interpreted the term 
"doctor's office" in St. Elizabeth Hospital.  141 Wis. 2d 787.  
In St. Elizabeth Hospital, the court of appeals considered 
whether a walk-in medical services area called "First Care," 
attached to St. Elizabeth Hospital's emergency room facility, 
was a doctor's office as that term is used in Wis. Stat. 
§ 70.11(4m)(a).  The court relied on four particular facts in 
holding that the First Care area did not constitute a doctor's 
office: (1) physicians neither owned nor leased the First Care 
facility or its equipment; (2) physicians did not receive 
                                                 
13 It should be noted that neither St. Clare Hospital nor 
St. Elizabeth Hospital set forth a test with factors that must 
be applied in every case.  The St. Elizabeth Hospital court 
described its analysis in terms of "the overwhelming facts of 
this case," and then considered a few of those facts.  St. 
Elizabeth Hospital, Inc. v. City of Appleton, 141 Wis. 2d 787, 
793, 416 N.W.2d 620 (Ct. App. 1987).  Its decision did not 
purport to establish a test for determining whether a facility 
is a doctor's office, requiring that the particular factors 
considered in St. Elizabeth Hospital be met in order to reach a 
similar conclusion.  The court of appeals recognized this in St. 
Clare 
Hospital 
when 
it 
noted, 
"We 
did 
not 
imply 
that 
satisfaction of the four factors listed [in St. Elizabeth 
Hospital] would conclusively establish that property was not 
used as a doctor's office, nor did we imply that the absence of 
any or all of these factors would establish that property was 
used as a doctor's office."  St. Clare Hosp. of Monroe v. City 
of Monroe, 209 Wis. 2d 364, 371, 563 N.W.2d 170 (Ct. App. 1997).  
The facts that were significant in St. Clare Hospital and St. 
Elizabeth Hospital are not prongs of a test that must be met or 
even considered in every case. 
No. 
2009AP1469 & 2009AP1470   
 
18 
 
variable compensation related to the scope or extent of their 
services;14 (3) physicians did not employ or supervise non-
physician staff; and (4) billing statements were issued by St. 
Elizabeth.  Id. at 793. 
¶35 Ten years after St. Elizabeth Hospital, the court of 
appeals again examined the term "doctor's office" in St. Clare 
Hospital, 209 Wis. 2d 364.  In St. Clare Hospital, the court of 
appeals considered whether a newly constructed free-standing 
clinic that was connected to a hospital by a skywalk was a 
doctor's office.  The St. Clare Hospital court held that while 
"the factors set forth in St. Elizabeth Hospital are helpful," 
the court emphasized that "the determination of whether property 
is used as a doctor's office ultimately turns on the facts of 
each case."  Id. at 372. 
                                                 
14 "Variable compensation" refers to compensation that is 
directly related to the productivity of the doctor.  Typically, 
as found by the circuit judge in St. Clare Hospital, the doctor 
receives compensation relating to their productivity in addition 
to a base salary.  St. Clare Hosp. v. City of Monroe, 1994CV81, 
Findings of Fact and Conclusions of Law 10-11 (Cir. Ct. for 
Green County).  Using this formula, "each doctor has the 
opportunity to make more money by increasing the doctor's 
productivity."  Id. at 10.  A doctor may increase his or her 
productivity "by working more hours, seeing more patients within 
whatever 
hours 
the 
doctor 
works, 
and 
performing 
more 
procedures."  Id. 
In St. Clare Hospital, the doctors were paid a base salary 
in addition to productivity-related compensation.  Id.  By 
contrast, at the Outpatient Clinic, doctors are neither paid a 
base 
salary 
nor 
provided 
compensation 
related 
to 
their 
productivity.  In fact, doctors who perform procedures at the 
Outpatient Clinic are not employees of the Outpatient Clinic, 
unlike the doctors in St. Clare Hospital. 
No. 
2009AP1469 & 2009AP1470   
 
19 
 
¶36 The St. Clare Hospital court discussed seven separate 
factors that were significant to its conclusion, six of which 
weighed in favor of classifying the new clinic building as a 
doctor's office: (1) the clinic physicians received variable 
compensation related to the extent of their services; (2) the 
clinic physicians who oversaw non-physician staff received extra 
compensation; (3) the new clinic's bills were generated on a 
separate software system from the hospital's bills; (4) each 
doctor practicing in the new clinic had an office in the 
building; (5) the new clinic provided care on an outpatient, as 
opposed to inpatient, basis; (6) the new clinic was open during 
regular business hours during which the physicians saw most 
patients by appointment.  Id. at 371-73.  The seventh factor, 
the only relevant factor that weighed against a finding that the 
new clinic was used as a doctor's office, was the fact that the 
doctors did not own or lease the building or equipment.  Id. at 
372.  The St. Clare Hospital court concluded that the fact that 
the doctors did not own or lease the building or equipment was 
insufficient in light of all the relevant factors to hold that 
the clinic was not a doctor's office. 
¶37 Applying the factors relied upon by the St. Clare 
Hospital and the St. Elizabeth Hospital courts to the facts 
found by the circuit court in this case, we conclude that 
Covenant has met its burden of demonstrating that the Outpatient 
Clinic is not a doctor's office.  First, physicians practicing 
at the Outpatient Clinic do not receive variable compensation 
related to the extent of their services.  Second, the Outpatient 
No. 
2009AP1469 & 2009AP1470   
 
20 
 
Clinic 
physicians 
do 
not 
receive 
extra 
compensation 
for 
overseeing non-physician staff.  Third, the Outpatient Clinic's 
bills are generated on the same software system as the bills 
generated by St. Joseph.  Fourth, physicians at the Outpatient 
Clinic do not have their own offices.  Instead, Outpatient 
Clinic Physicians have shared access to unassigned cubicles.  
Fifth, the physicians practicing at the Outpatient Clinic do not 
own or lease the building or equipment——all equipment is the 
exclusive property of St. Joseph. 
¶38 The City notes that two factors relied upon by the St. 
Clare Hospital court weigh against our conclusion that the 
Outpatient Clinic is not a doctor's office.  Specifically, the 
City notes that, like the clinic in St. Clare Hospital, (1) the 
Outpatient Clinic does not provide inpatient services, and (2) 
most patients are seen by physicians at the Outpatient Clinic by 
appointment during regular business hours.  Although these 
factors were important to the court of appeals' conclusion in 
St. Clare Hospital, these factors alone are not determinative. 
¶39 First, technological advances have made it possible 
for more complex procedures to be conducted on an outpatient 
basis.  For example, a foot or ankle surgery that once may have 
required one or two nights recovery in an inpatient hospital may 
now be performed at the Outpatient Clinic with recovery at home.  
The fact that these complex procedures are performed in an 
outpatient setting does not automatically convert the Outpatient 
Clinic into a doctor's office.  Second, most services performed 
in the outpatient center of the St. Joseph Chambers Street 
No. 
2009AP1469 & 2009AP1470   
 
21 
 
Hospital 
(and 
other 
large 
hospitals) 
are 
performed 
by 
appointment during business hours.  The City concedes that the 
outpatient center at the St. Joseph Chambers Street Hospital is 
tax-exempt.  It is unreasonable to penalize St. Joseph for 
providing these services at the Outpatient Clinic when the 
performance of those same services would not disturb the tax-
exempt status of the larger St. Joseph Chambers Street Hospital. 
¶40 Other facts found by the circuit court bolster our 
conclusion that the Outpatient Clinic is not a doctor's office 
as that term is used in Wis. Stat. § 70.11(4m)(a).  The 
Outpatient Clinic contains a gift shop and a cafeteria for the 
use of patients, visitors, and staff.  Typical doctor's offices 
do not contain such amenities.  Further, the Outpatient Clinic 
Urgent Care Center is designed to operate similarly to an 
emergency room.  It may accept emergency ambulances and has the 
capability to treat all levels of emergency care.  Typical 
doctor's 
offices 
have 
no 
such 
advanced 
emergency 
care 
operations. 
¶41 Moreover, when a patient receives services in a 
typical doctor's office, he or she receives one bill for the 
visit.  When a patient receives services at the Outpatient 
Clinic, however, the patient receives a facility bill from the 
Outpatient Clinic as well as a professional bill from the 
attending physician. 
¶42 Significantly, the circuit court found that St. Joseph 
had previously provided these services through the St. Joseph 
Bluemound Outpatient Hospital, which the City considered tax-
No. 
2009AP1469 & 2009AP1470   
 
22 
 
exempt property from 1996 until 2003.  It was only after the 
Outpatient Clinic absorbed and upgraded the services offered at 
St. 
Joseph 
Bluemound 
Outpatient 
Hospital 
that 
the 
City 
considered the tax exemption under Wis. Stat. § 70.11(4m)(a) to 
be improper.  This is distinguishable from the situation in St. 
Clare where the hospital purchased a private doctor's office 
that had never before qualified as tax-exempt.  In the instant 
case, to the extent that an already existing facility——St. 
Joseph Bluemound Outpatient Hospital——was being replaced, it was 
a facility that both the city and St. Joseph had treated as a 
tax-exempt outpatient hospital.  Although the Outpatient Clinic 
was the replacement for St. Joseph Bluemound, it was not 
afforded the same tax-exempt status.   
¶43 To support its contention that the Outpatient Clinic 
is a doctor's office, the City also points to the fact that the 
Outpatient Clinic is five miles away from the St. Joseph 
Chambers Street Hospital.  The plain language of Wis. Stat. 
§ 70.11(4m) belies the City's argument that proximity is 
relevant to this issue.  "[S]tatutory language is interpreted in 
the context in which it is used; not in isolation but as part of 
a whole; in relation to the language of surrounding or closely-
related statutes . . . ."  State ex rel. Kalal v. Circuit Court 
for Dane County, 2004 WI 58, ¶46, 271 Wis. 2d 633, 681 
N.W.2d 110.  Only the provision of § 70.11(4m) prohibiting an 
exemption for health and fitness facilities contains language 
that indicates proximity is a relevant consideration.  See Wis. 
Stat. § 70.11(4m)(c).  This particular provision states that 
No. 
2009AP1469 & 2009AP1470   
 
23 
 
health and fitness facilities must be "within the physical 
confines of a hospital" in order to be exempt.  Id.  By 
contrast, § 70.11(4m)(a), the provision relevant in this case, 
contains no language indicating that the legislature intended to 
make proximity to St. Joseph a valid consideration in the 
analysis of whether the Outpatient Clinic is a doctor's office.  
Accordingly, we conclude that proximity to the St. Joseph 
Chambers Street Hospital is irrelevant when considering whether 
the Outpatient Clinic qualifies as a doctor's office.  
¶44 Considering all of the relevant findings of fact, as 
well as the analysis in St. Elizabeth Hospital and St. Clare 
Hospital, we conclude that Covenant has met its burden of 
establishing that the Outpatient Clinic is not a doctor's office 
under Wis. Stat. § 70.11(4m)(a).15 
                                                 
15 We are surprised by several points in the dissent's 
argument that the Outpatient Clinic is "used as a doctor's 
office."  See Wis. Stat. § 70.11(4m). While the dissent 
complains that we focus on a number of factors that are 
"business choices" rather than on facts relating to "the nature 
of services provided and manner in which these services are 
delivered to the patient," the factors we rely upon are the same 
as those considered by the court of appeals in St. Elizabeth 
Hospital and St. Clare Hospital.  These two cases are the only 
appellate decisions that have addressed the question of what 
constitutes a "doctor's office" under § 70.11(4m), and so it 
should be foreseeable that we would consider the same factors. 
No. 
2009AP1469 & 2009AP1470   
 
24 
 
C.  Commercial Purposes 
 
¶45 We next consider whether the Outpatient Clinic is 
"used for commercial purposes" under Wis. Stat. § 70.11(4m)(a).  
If the Outpatient Clinic is used for commercial purposes, then 
it does not qualify for an exemption.  See § 70.11(4m)(a).  
Covenant bears the burden of establishing that the Outpatient 
Clinic is not used for commercial purposes.  See FH Healthcare 
Dev., Inc. v. City of Wauwatosa, 2004 WI App 182, ¶18, 276 
Wis. 2d 243, 687 N.W.2d 532. 
                                                                                                                                                             
Additionally, several of the findings of fact provided by 
the dissent as evidence in support of its conclusion that the 
Outpatient Clinic is a doctor's office simply do not support 
that argument.  For example, the dissent notes that "[t]wo of 
the five floors of the Outpatient clinic were leased by medical 
professionals for their own practices, providing outpatient 
services.  Covenant does not claim exemption for these two 
floors."  While this is true, it has no relevance to the 
question at hand——whether the Outpatient Clinic is a "doctor's 
office." 
The dissent urges us to adopt a new test wherein we look to 
whether "[a] patient would perceive the Outpatient Clinic to be 
a property used as a doctor's office."  However, the findings of 
fact that the dissent focuses on to show that the Outpatient 
Clinic is a doctor's office would go unnoticed by most patients.  
Would a patient, for instance, be aware that the "outpatient 
surgery center within the Outpatient Clinic . . . does not treat 
patients whose estimated recovery time is" greater than four 
hours?   In a similar vein, would a patient really consider the 
fact that the Outpatient Clinic is open 24 hours a day for care 
as evidence that the Outpatient Clinic operates as a typical 
doctor's office? 
Put simply, the dissent is advocating a new, unworkably 
narrow "patient's view" approach to determine whether the 
Outpatient Clinic is a doctor's office.  Not only does the 
dissent fail to cite authority for this approach; it also fails 
to apply its approach to the facts of this case in a consistent 
manner. 
No. 
2009AP1469 & 2009AP1470   
 
25 
 
¶46 In FH Healthcare, the court of appeals held that 
"commercial purposes are those through which profits are made."  
276 Wis. 2d 243, ¶20.  The City argues that the Outpatient 
Clinic is used for commercial purposes because the predominant 
purpose of the Outpatient Clinic is to generate profit through 
direct competition with other outpatient clinics, both for-
profit and not-for-profit.  By defining "profits" as "revenues 
in excess of costs," the City's argument oversimplifies the 
meaning of the term "commercial purpose" when used in the 
context of a not-for-profit entity. 
¶47 A not-for-profit entity "is not required to use only 
red ink in keeping its books and ledgers."  Milwaukee Protestant 
Home for the Aged v. City of Milwaukee, 41 Wis. 2d 284, 296, 164 
N.W.2d 289 (1969).  In order to survive, not-for-profit entities 
must cover costs.  See Duncan v. Steeper, 17 Wis. 2d 226, 236, 
116 N.W.2d 154 (1962).  "To deny an otherwise qualifying 
institution 
charitable 
status 
because 
it 
is 
efficiently 
organized and managed, so as to operate in the black, would be 
not only illogical but also extremely detrimental to the 
incentive for sound management in such institutions."  Id.  Our 
case law, therefore, makes clear that not-for-profit entities 
may operate in such a fashion that generates revenues in excess 
of expenses.  Otherwise, in order to qualify for the property 
tax exemption, all not-for-profit hospitals would be required to 
either continually operate at a loss or otherwise obtain 
precisely 
enough 
revenue 
to 
cover 
costs 
and 
no 
excess.  
Accordingly, in the context of not-for-profit entities, we 
No. 
2009AP1469 & 2009AP1470   
 
26 
 
decline to limit the definition of "commercial purposes" to 
those purposes which generate profits. 
¶48 The 
FH 
Healthcare 
court 
cited 
an 
alternative 
definition 
of 
the 
term 
"commercial" 
which 
we 
find 
more 
appropriate in defining the phrase "commercial purposes."16  This 
definition was "having profit as the primary aim."  276 
Wis. 2d 243, ¶20 (citing Webster's Third New International 
Dictionary 456 (1993)) (emphasis added).  We conclude this 
definition is a more appropriate one for the purposes of the 
not-for-profit hospital exemption. 
¶49 As the circuit court's findings of fact show, the 
Outpatient Clinic is primarily devoted to the diagnosis, 
treatment and care of the sick, injured, and disabled.  The City 
ignores that the Outpatient Clinic's business plan lists and 
describes several other goals beyond increasing its profit 
margin.  The business plan includes the purpose of promoting a 
greater faith-based healthcare presence.  Additionally, the 
circuit court found that St. Joseph serves a greater portion of 
Medicare 
and 
Medicaid 
patients 
than 
other 
Milwaukee 
and 
Wisconsin hospitals.  This is not a case where private 
physicians or individual shareholders will receive any excess 
revenues that the Outpatient Clinic generates.  The primary aim 
                                                 
16 "The 
common 
and 
approved 
usage 
of 
words 
can 
be 
established by the definition of a recognized dictionary."  
Kopke v. A. Hartrodt S.R.L., 2001 WI 99, ¶16, 245 Wis. 2d 396, 
629 N.W.2d 662. 
No. 
2009AP1469 & 2009AP1470   
 
27 
 
of the Outpatient Clinic is not, as the City asserts, to earn 
profits. 
 
¶50 In light of these facts, we conclude that the 
Outpatient Clinic is not operated for commercial purposes under 
Wis. Stat. § 70.11(4m)(a). 
D.  Inurement to a Member 
 
¶51 Section 70.11(4m)(a) exempts hospital property from 
taxation so long as "no part of the net earnings . . . inures to 
the 
benefit 
of 
any 
shareholder, 
member, 
director 
or 
officer . . . ."  (Emphasis added.)  Covenant is a not-for-
profit corporation and is the sole member of St. Joseph.17  It is 
St. Joseph which owns the Outpatient Clinic.  Because we assume 
that the net earnings of St. Joseph inure to the benefit of 
                                                 
17 Wisconsin 
Stat. 
ch. 
181 
governs 
not-for-profit 
corporations.  For the purposes of Chapter 181, "member" is 
defined as an individual or corporation "who has membership 
rights in a corporation in accordance with the provisions of its 
articles 
of 
incorporation 
or 
bylaws." 
 
Wis. 
Stat. 
§§ 181.0103(15), 990.01(26).  Among other responsibilities, 
members 
are 
responsible 
for 
selecting 
the 
not-for-profit 
corporation's board of directors.  Wis. Stat. § 181.0804(1).  
See also Nonprofit Governance: The Executive's Guide 233-38 
(Victor Futter & George W. Overton eds., 1997).  The rights and 
obligations of members in a not-for-profit corporation are 
defined in Wis. Stat. §§ 181.0601-181.0747 and are roughly 
equivalent to the rights and obligations of a shareholder in a 
for-profit corporation.  See Nonprofit Governance at 234-35. 
The issue here is whether a not-for-profit corporation 
qualifies as a "member" under a different chapter, specifically 
Wis. Stat. ch. 70.  Chapter 70 contains no definition of the 
term "member."  Therefore, we apply principles of statutory 
interpretation to determine whether a "member" of a not-for-
profit corporation under Chapter 181 is also a "member" under 
the hospital tax exemption found in Wis. Stat. § 70.11(4m)(a). 
No. 
2009AP1469 & 2009AP1470   
 
28 
 
Covenant, the issue turns on whether a not-for-profit hospital 
corporation (Covenant) qualifies as a "member" as that term is 
used in § 70.11(4m)(a). 
 
¶52 "[S]tatutory interpretation begins with the language 
of the statute."  Kalal, 271 Wis. 2d 633, ¶45.  We give 
statutory language "its common, ordinary, and accepted meaning, 
except that technical or specially-defined words or phrases are 
given their technical or special definitional meaning."  Id.  
Context is important to meaning, "as is the structure of the 
statute in which the operative language appears."  Id., ¶46.  
"Therefore, statutory language is interpreted in the context in 
which it is used; not in isolation but as part of a whole; in 
relation to the language of surrounding or closely-related 
statutes; and reasonably, to avoid absurd or unreasonable 
results."  Id.  We now discuss why it would be unreasonable to 
classify not-for-profit corporations as "member[s]" under Wis. 
Stat. § 70.11(4m)(a). 
 
¶53 We interpreted the inurement restriction of Wis. Stat. 
§ 70.11(4m)(a) in Bethel Convalescent Home, Inc. v. Town of 
Richfield, 15 Wis. 2d 1, 111 N.W.2d 913 (1961).  In Bethel, we 
considered 
whether 
a 
not-for-profit 
hospital 
corporation 
qualified 
for 
exemption. 
 
Five-percent 
of 
the 
hospital 
corporation's gross income18 was set aside to retire debt 
                                                 
18 Gross income is typically defined as receipts and gains 
from all sources less cost of goods sold.  Net earnings, 
synonymous with net income or net profit, typically equals gross 
income less total expenses and losses.  When gross income is 
used to retire debt, it necessarily reduces net earnings. 
No. 
2009AP1469 & 2009AP1470   
 
29 
 
incurred in acquiring real property owned by the hospital 
corporation.  Id. at 4.  As the Bethel court noted, when gross 
income is used to retire debt it increases the hospital 
corporation's net capital assets.  Id. at 5.  The hospital 
corporation's net capital assets——now increased in value by the 
expenditure of the hospital's gross income——were available to 
the five individual members of the hospital corporation upon 
dissolution.  Id. at 6.  We held that when a hospital 
corporation used income to increase net capital assets, a 
benefit inured to the hospital corporation's five individual 
members, regardless of whether those individual members received 
an immediate payout.  Id. 
¶54 In other words, the Bethel court held that a benefit 
inures to a "shareholder, member, director, or officer" when 
that person may receive a not-for-profit corporation's assets on 
dissolution.19  If we interpret the term "member" in Wis. Stat. 
§ 70.11(4m)(a) to include not-for-profit corporate members, then 
those not-for-profit corporate members would have to be excluded 
from any distribution of assets upon dissolution.  Thus, in the 
instant case, St. Joseph would be precluded from leaving any 
assets to its sole member, Covenant, upon dissolution.  As the 
circuit court concluded, this is an unreasonable construction of 
the statute. 
                                                 
19 We assume, in this case, that the net earnings of St. 
Joseph have been used to increase its net capital assets. 
No. 
2009AP1469 & 2009AP1470   
 
30 
 
¶55 In order to maintain their tax-exempt status, not-for-
profit corporations would be required to rewrite their bylaws to 
provide that upon dissolution, their assets would go to 
unrelated not-for-profit entities.20  Without doing so, a not-
for-profit entity could never qualify for the tax exemption 
found in Wis. Stat. § 70.11(4m)(a) if it had a not-for-profit 
corporation as a member.  We agree with the circuit court that 
"such a scenario may provide an interest in the failure of the 
[not-for-profit] hospital to the unrelated entity and would lead 
to an unreasonable construction of Wis. Stat. § 70.11(4m)(a)." 
¶56 Further, our holding in Bethel is distinguishable from 
the instant case.  The concern of the Bethel court was the 
possibility that private physicians would form a purportedly 
not-for-profit corporation in order to gain a tax exemption.  
This court has long established that private physicians or for-
profit entities may not use a not-for-profit corporation as a 
vehicle through which to avoid tax liability.  Prior to the 
enactment of Wis. Stat. § 70.11(4m), we consistently rejected 
physician efforts to obtain property tax exemptions for small 
hospitals created with a profit motive.  See Riverview Hosp. v. 
City of Tomahawk, 243 Wis. 581, 586, 11 N.W.2d 188 (1943); 
Prairie du Chien Sanitarium, Co. v. City of Prairie du Chien, 
242 Wis. 262, 267, 7 N.W.2d 832 (1943).  In these early cases 
and in Bethel, the members who benefitted from the tax exemption 
                                                 
20 Upon dissolution, tax-exempt entities, like St. Joseph, 
must provide for distribution of assets to other not-for-profit, 
tax-exempt entities.  Tres. Reg. § 1.501(c)(3)-1(b)(4) (2008).  
No. 
2009AP1469 & 2009AP1470   
 
31 
 
were private individuals.  In the instant case, the circuit 
court found and we agree that no benefit will inure to a private 
individual or for-profit entity from St. Joseph's net earnings.  
 
¶57 To 
hold 
that 
the 
term 
"member" 
in 
Wis. 
Stat. 
§ 70.11(4m)(a) 
includes 
not-for-profit 
entities 
would 
be 
contrary to longstanding principles of Wisconsin law.  Such a 
holding would 
require every not-for-profit corporation in 
Wisconsin, in order to maintain its tax-exempt status, to 
rewrite its bylaws to provide that upon dissolution, its assets 
transfer to unrelated not-for-profit entities.  This is an 
unreasonable result.  Accordingly, we hold that the term 
"member" as it is used in Wis. Stat. § 70.11(4m)(a) does not 
include not-for-profit entities such as Covenant.  We therefore 
hold that § 70.11(4m)(a)'s inurement restriction does not apply 
in this case. 
V.  CONCLUSION 
 
¶58 We hold that the Outpatient Clinic is used for the 
primary purposes of a hospital and therefore qualifies as tax-
exempt property under Wis. Stat. § 70.11(4m)(a).  Additionally, 
we hold that the Outpatient Clinic is neither a doctor's office 
nor a property used for commercial purposes within the meaning 
of § 70.11(4m)(a).  Finally, we conclude that no benefit inures 
to any member of St. Joseph because the term "member" under 
§ 70.11(4m)(a) does not include not-for-profit entities. 
By the Court.—The decision of the court of appeals is 
reversed. 
 
No.  2009AP1469 & 2009AP1470.ssa 
 
1 
 
 
¶59 SHIRLEY 
S. 
ABRAHAMSON, 
C.J.   (dissenting). 
 
To 
encourage non-profit hospitals to care for the sick, the 
legislature provides a property tax exemption for non-profit 
hospitals.  See Wis. Stat. § 70.11(4m)(a); St. Clare Hosp. of 
Monroe v. City of Monroe, 209 Wis. 2d 364, 369, 563 N.W.2d 170 
(Ct. App. 1997).  But the tax exemption for property used 
exclusively by a non-profit for hospital purposes "does not 
apply to property used . . . as a doctor's office."  Wis. Stat. 
§ 70.11(4m)(a).1    
¶60 The 
rules 
applicable to interpreting Wis. Stat. 
§ 70.11(4m) and applying the statute to the undisputed facts in 
the present case are as follows:  A presumption exists that the 
property 
in 
question 
is 
taxable. 
 
Wis. 
Stat. 
§ 70.109.  
Exemptions are strictly construed.  Wis. Stat. § 70.109.  The 
party claiming a tax exemption bears the burden of establishing 
that the property is not used as a doctor's office.  Wis. Stat. 
§ 70.109.2      
¶61 I agree with the court of appeals that Covenant has 
not met its burden to prove that the facility at issue is not 
"used as a doctor's office."  I therefore dissent. 
                                                 
1 Because I conclude that the property is used as a doctor's 
office, I do not address the other issues Covenant or the 
majority opinion address.   
2 Wisconsin 
Stat. 
§ 70.109, 
entitled 
"Presumption 
of 
taxability" provides:  "Exemptions under this chapter shall be 
strictly construed in every instance with a presumption that the 
property in question is taxable, and the burden of proof is on 
the person who claims the exemption." 
No.  2009AP1469 & 2009AP1470.ssa 
 
2 
 
I 
¶62 The focus of inquiry is whether the facility at issue 
is "property used as a doctor's office" under Wis. Stat. 
§ 70.11(4m)(a).  The answer to this question requires the court 
to apply the "used as a doctor's office" exception, which was 
adopted in 1977, to the complexities of modern healthcare 
delivery.  The court of appeals aptly stated fifteen years ago:  
"As the line of distinction between the traditional hospital and 
traditional doctor's office blurs, it becomes increasingly 
difficult to define 'property used as a doctor's office.'"  St. 
Clare Hosp., 209 Wis. 2d at 371-72.  The line continues to blur. 
¶63 Healthcare delivery has changed considerably since 
1977.  An increasing number of healthcare services previously 
provided only in hospitals are now more efficiently and 
effectively provided in outpatient facilities.  Large non-profit 
healthcare delivery systems have been created that deliver all 
aspects of medical services through complex entity structures, 
including 
outpatient 
care 
in 
freestanding 
facilities.  
Outpatient care may be provided in pharmacies, in shopping 
malls, and in big-box stores, as well as in office buildings.  
The large integrated health system model we have today strains 
the distinction created by the statutory language. 
II 
¶64 "Property used as a doctor's office" is not a 
technical phrase with a peculiar meaning in the law.  St. Clare 
No.  2009AP1469 & 2009AP1470.ssa 
 
3 
 
Hosp., 209 Wis.2d at 373.3  "Property used as a doctor's office" 
is not what a complex healthcare entity might define as a 
"doctor's office," but rather should be given its ordinary 
meaning, in other words, what a patient (or a legislator) would 
consider to be a "doctor's office," considering the nature of 
the services provided and the manner in which those services are 
delivered to the patient.    
¶65 The court of appeals described a "doctor's office" as 
"a place where doctors see patients, mostly by appointment, 
during scheduled business hours, and have their offices."4  This 
simple definition appropriately focuses the inquiry of whether a 
facility is "used . . . as a doctor's office" on the "nature of 
services provided and the manner in which these services are 
delivered to the patient."5    
¶66 In contrast to a "doctor's office," a hospital is a 
place that offers "inpatient, overnight care."  St. Clare Hosp., 
209 Wis. 2d at 373.    
¶67 The "determination of whether property is used as a 
doctor's office ultimately turns on the facts of each case."  
St. Clare Hosp., 209 Wis. 2d at 372.  A court should look at the 
facts 
of 
each 
case 
to 
determine 
the 
similarities 
and 
                                                 
3 One common notion of a doctor's office might be a facility 
that provides care on an outpatient basis, whereas a hospital 
provides inpatient, overnight care.  St. Clare Hospital of 
Monroe, Inc. v. City of Monroe, 209 Wis. 2d 364, 373, 563 
N.W.2d 170 (Ct. App. 1997).  
4 Covenant Healthcare System, Inc. v. City of Wauwatosa, 
2010 WI App 125, ¶17, 329 Wis. 2d 393, 791 N.W.2d 205. 
5 St. Clare Hosp., 209 Wis. 2d at 373. 
No.  2009AP1469 & 2009AP1470.ssa 
 
4 
 
dissimilarities between the property at issue and "a place where 
doctors see patients, mostly by appointment, during scheduled 
business hours, and have their offices" and a hospital that 
offers "inpatient, overnight care."  In the present case, the 
following findings of fact of the circuit court support the 
conclusion that the use of the St. Joseph Outpatient Clinic is 
more similar to property used as "a place where doctors see 
patients, mostly by appointment, during scheduled business 
hours, and have their offices" than a hospital that delivers 
"inpatient, overnight care": 
 
• 
The Outpatient Clinic is a freestanding outpatient 
medical facility, five miles from the St. Joseph inpatient 
hospital facility. 
 
• 
The 
Outpatient 
Clinic, 
like 
a 
doctor's 
office, 
normally requires appointments during regular business 
hours. 
 
• 
The Outpatient Clinic, unlike a hospital, does not 
provide inpatient care. 
 
• 
The outpatient surgery center within the Outpatient 
Clinic, unlike a hospital, does not treat patients whose 
estimated recovery time is over four hours. 
 
• 
Two of the five floors of the Outpatient Clinic were 
leased by medical professionals for their own practices, 
providing outpatient services.  Covenant does not claim 
exemption for these two floors.  
 
• 
The Urgent Care Center within the Outpatient Clinic, 
occupying less than 10% of the space, is not physically 
adjacent to an acute care hospital, and therefore lacks 
immediate access to the features of a full service, acute 
care inpatient hospital. 
 
• 
The most common conditions treated by the Urgent Care 
Center are broken bones, injuries requiring sutures, 
sprains and strains, accidents and falls, asthma, allergy 
attacks, eye injuries, rashes, minor burns, colds, and flu.  
No.  2009AP1469 & 2009AP1470.ssa 
 
5 
 
These conditions are all generally treated by a doctor 
outside a hospital. 
 
• 
The Urgent Care Center, unlike a hospital, typically 
does not accept ambulances, but like a hospital is open 24 
hours a day for care. 
 
• 
Patients in the Urgent Care Center with more serious 
conditions are stabilized and then transferred to an 
emergency unit or admitted as an inpatient at a hospital.  
 
¶68 In sum, the property at issue is a freestanding 
outpatient clinic owned by a non-profit hospital and used as 
doctors' offices to see patients and provide outpatient medical 
services, mostly by appointment, and mostly during scheduled 
business hours.  It is important to point out that the instant 
case does not involve outpatient facilities within a hospital.  
Nothing in the majority opinion or dissent decides anything 
about outpatient services provided within hospitals.    
¶69 The Outpatient Clinic is similar in use and function 
to large multi-specialty doctors' offices that include a walk-in 
clinic or day surgery center.  
¶70 A knowledgeable patient would perceive the Outpatient 
Clinic to be a property used as a doctor's office based on the 
nature of services provided and manner in which these services 
are delivered at the Outpatient Clinic.  Appointments are 
generally required.  Services are generally offered only during 
regular business hours.  The clinics are not within a hospital, 
there is no hospital adjacent to the Outpatient Clinic, and the 
facility is not used to provide inpatient, overnight care.     
¶71 While not definitive, the Outpatient Clinic property 
seems to encompass many of the generic features generally 
No.  2009AP1469 & 2009AP1470.ssa 
 
6 
 
attributed to a doctor's office, including examination rooms and 
private space, although unassigned, for doctors to do paper work 
and return telephone calls.6   
¶72 Although the Outpatient Clinic may be capable of 
hospital-like care, the Outpatient Clinic, including the Urgent 
Care Center, is actually used to treat conditions similar to 
those generally treated in a doctor's office.  The Urgent Care 
Center is marketed as a "24-hour 'quick care'" center for minor 
injuries and non-life-threatening health problems. 
¶73 I am not persuaded by the majority opinion because it 
relies heavily upon facts that are business choices Covenant has 
made in operating the Outpatient Clinic, rather than on facts 
relating to "the nature of services provided and manner in which 
these services are delivered to the patient."  The majority 
fails to connect how certain operational features, such as 
utilizing the same billing and record keeping system as St. 
Joseph's 
Hospital, 
staffing 
the 
Urgent 
Care 
Center 
with 
emergency 
medicine 
physicians, requiring referrals from a 
physician, providing unassigned work spaces (cubicles rather 
than assigned individual offices with four walls) for doctors to 
use for paperwork, providing services under the St. Joseph's 
hospital license, or qualifying its services for hospital-based 
reimbursement through Medicare, affect "the nature of services 
provided and manner in which these services are delivered to the 
patient."   
                                                 
6 Amicus Curiae Brief and Appendix of the Wisconsin Ass'n of 
Assessing Officers at 7-10. 
No.  2009AP1469 & 2009AP1470.ssa 
 
7 
 
¶74 I agree with the court of appeals that whether the 
Outpatient Center "qualifies as a hospital or a doctor's office 
under rules and regulations promulgated outside the [property] 
tax code is irrelevant to whether the [Outpatient Center] 
qualifies as a doctor's office for purposes of property tax 
exemption under Wis. Stat. § 70.11(4m)(a)."7     
¶75 The majority opinion produces at least two unfavorable 
consequences.  First, the majority opinion, by extending the 
property tax exemption to outpatient facilities owned and 
operated by not-for-profit hospitals, places at a distinct 
competitive disadvantage doctors' offices operated by for-profit 
entities that provide the same services in the same manner.8  
Second, "the more exceptions allowed, the more inequitable 
becomes the apportionment of the tax burden.  The continuous 
removal of real property from taxation thus imposes a particular 
hardship upon local government and the citizen taxpayer."9   
¶76 I recognize that the result the court of appeals and I 
reach may also have unfavorable consequences.  The amicus briefs 
of the Wisconsin Hospital Association and the Rural Wisconsin 
Health Cooperative assert that the decision to tax will have a 
disproportionate impact on smaller rural hospitals that tend to 
                                                 
7 Covenant Healthcare System, Inc. v. City of Wauwatosa, 
2010 WI App 125, ¶20, 329 Wis. 2d 393, 791 N.W.2d 205. 
8 St. Clare Hosp., 209 Wis. 2d at 375-76. 
9 Univ. of Wis. Med. Found., Inc. v. City of Madison, 2003 
WI App 204, ¶11, 267 Wis. 2d 504, 671 N.W.2d 292 (quoting Int'l 
Found. of Emp. Benefits Plans, Inc. v. City of Brookfield, 95 
Wis. 2d 444, 454, 290 N.W.2d 720 (Ct. App. 1980), aff'd, 100 
Wis. 2d 66, 301 N.W.2d 175 (1981)). 
No.  2009AP1469 & 2009AP1470.ssa 
 
8 
 
be 
more 
dependent 
on 
outpatient 
revenue 
than 
are 
urban 
hospitals.  They also argue that without a standard test of set 
factors both hospitals and taxing authorities are left to guess 
whether any particular facility is subject to property tax. 
¶77 The court of appeals had the correct response in St. 
Clare Hospital, 209 Wis. 2d at 376: "The question whether to 
extend the § 70.11(4m)(a), Stats., exemption to outpatient 
clinics owned and operated by nonprofit hospitals is a public 
policy question for the legislature, not us, to decide.  We are 
not to extend property tax exemptions by implication."   
¶78 In light of the changing ways medical services are 
delivered, it may be time for the legislature to re-examine Wis. 
Stat. § 70.11(4m)(a).  Until the legislature acts on this 
question of public policy, the presumption is that the property 
at issue is subject to taxation, that tax exemptions should be 
strictly construed, and that the burden of persuasion is on the 
party seeking the property tax exemption.   
¶79 Because I conclude that Covenant has not met its 
burden of proving that this property is not "used as a doctor's 
office," I agree with the decision of the court of appeals that 
the property at issue is subject to taxation.     
¶80 For the reasons set forth, I dissent. 
 
No.  2009AP1469 & 2009AP1470.ssa 
 
 
 
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