Title: Dialysis Clinic, Inc. v. Levin

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Dialysis Clinic, Inc. v. Levin, Slip Opinion No. 2010-Ohio-5071.] 
 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2010-OHIO-5071 
DIALYSIS CLINIC, INC., APPELLANT, v. LEVIN, TAX COMMR., APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Dialysis Clinic, Inc. v. Levin,  
Slip Opinion No. 2010-Ohio-5071.] 
Taxation — Charitable-use exemption of real property from taxation — R.C. 
5709.12 — R.C. 5709.121 — Board of Tax Appeals’ denial of claim for 
charitable-use exemption was reasonable and lawful. 
(No. 2009-2310 — Submitted August 10, 2010 — Decided October 26, 2010.) 
APPEAL from the Board of Tax Appeals, No. 2006-V-2389. 
__________________ 
LANZINGER, J. 
{¶ 1} This is an appeal from a decision of the Board of Tax Appeals 
(“BTA”) in a case involving an application for a tax exemption for real property. 
Appellant, Dialysis Clinic, Inc. (“DCI”), provides dialysis services for patients 
who suffer from end-stage renal disease (“ESRD”).  DCI sought to obtain a 
charitable-use exemption for its West Chester facility in Butler County, but the 
Tax Commissioner denied the application.  On appeal, the BTA affirmed the 
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denial of the exemption, finding that DCI had not shown that it qualified as a 
charitable institution for purposes of R.C. 5709.121 or that the use of the West 
Chester facility’s real property was exclusively charitable, pursuant to R.C. 
5709.12(B). 
{¶ 2} Based on our review of the case law and the record of this case, 
and concluding that the BTA’s decision is reasonable and lawful, we affirm. 
I.  Facts 
{¶ 3} DCI was organized as a nonprofit corporation in Tennessee in 
1971.  DCI’s charter specifically states that DCI’s purpose is to operate dialysis 
clinics and to receive and apply funds to purposes recognized under Section 
501(c)(3) of the Internal Revenue Code; as amended, the charter explicitly 
prohibits operating for “pecuniary gain or profit.”1   
{¶ 4} On December 22, 2003, DCI filed an application for a property-tax 
exemption for tax year 2004 for its West Chester facility, a 9846-square-foot 
building located at 7650 University Drive in Butler County, at which DCI 
provides dialysis services to ESRD patients.  In the application, DCI stated that 
fees for services “are billed to Medicare, Medicaid or insurance companies and 
patients with ability to pay.  Patients unable to pay for services are not turned 
away.”  The application did not identify the statutory sections under which 
exemption was sought, but the commissioner reviewed the application as a claim 
for charitable-use exemption under R.C. 5709.12(B) and R.C. 5709.121. 
{¶ 5} DCI is certified by the IRS as a Section 501(c)(3) tax-exempt 
entity.  DCI’s federal tax filings showed an excess of revenues over expenses of 
$6,306,492 in 2003 and $32,167,517 in 2004.  As of October 2006, DCI operated 
195 outpatient dialysis clinics in 26 states and devoted a good deal of its net 
income to promoting kidney research.  In addition to the West Chester clinic, DCI 
                                                 
1.  In its brief, DCI states that its “charter prohibits it from turning away patients that cannot pay,” 
but the charter makes no such express commitment. 
January Term, 2010 
3 
 
also has Ohio clinics in Walnut Hills, Western Hills, and Mt. Healthy areas in 
Cincinnati, in Portsmouth, and in East Liverpool.  Although some DCI facilities 
generate net income (as does the company as a whole), the West Chester facility 
was not one of them:  until the August 2008 BTA hearing, the West Chester 
facility had suffered an average net loss of $250,000 per year. 
{¶ 6} Medicare covers the cost of dialysis for persons with ESRD 
without regard to income.  According to testimony at the BTA hearing, Medicare 
initially pays 80 percent of the cost of services, with 20 percent remaining the 
patient’s responsibility.  Patients who qualify for Medicare but who cannot pay 
the copayment may also qualify for Medicaid, which would then pay the 
copayment.  Low-income patients who do not qualify for Medicare may qualify 
for Medicaid benefits.  DCI accepts both Medicare and Medicaid patients.  
Medicare regulations prohibit a clinic from providing services at a lower fee to 
non-Medicare patients than that charged to Medicare patients.  As a result, DCI’s 
clinics must seek payment from all patients and otherwise follow Medicare and 
Medicaid requirements. 
{¶ 7} DCI stated that 62 percent of its patients at the West Chester 
facility are Medicare patients and nine percent are covered by Medicaid.  For 
many Medicare and Medicaid patients, if the patient is indigent, DCI writes off 
the portion that the patient is obligated to pay.  DCI stated that it did provide 
“charity care” for persons who are ineligible for or are waiting to qualify for 
Medicare or Medicaid, but it did not quantify such aid. 
{¶ 8} DCI’s administrator for the Cincinnati area testified before the 
BTA that 65 to 75 percent of DCI patients in that area are Medicare patients.  At 
the West Chester facility, 60 to 65 percent on any given day are Medicare 
patients, and 10 percent are Medicaid-only patients.  Approximately 15 percent of 
DCI’s patients in the area are privately insured.  Medicare is DCI’s primary 
revenue source. 
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{¶ 9} DCI applied half of its excess revenue to support kidney research 
and half to subsidize its own services – which included covering unpaid costs of 
providing care, opening new clinics, and operating a children’s summer camp free 
of charge to children who suffer from ESRD or who have received kidney 
transplants.  DCI’s donations to research at the University of Cincinnati from 
2004 to the 2008 hearing exceeded $1.7 million. 
{¶ 10} DCI developed a policy to comply with Medicare regulations 
regarding care to indigent patients.  Medicare prohibits providers from charging 
favorable rates to non-Medicare patients (so as to prohibit a sliding scale of fees).  
But Medicare will reimburse a provider for unpaid deductibles or coinsurance 
under certain circumstances.  Patients in financial need are asked to fill out the 
Financial Analysis Form (“FAF”) within ten days of admission to treatment.  
Even private-pay patients may submit the form, which allows DCI to ascertain 
whether to pursue collection of an unpaid bill or write off amounts as 
uncollectible pursuant to Medicare guidelines.  At some Cincinnati-area facilities, 
DCI had patients who had no outside payment source (or who had failed to 
properly apply for government benefits), but there had never been any such 
patients at the West Chester facility. 
{¶ 11} DCI receives its patients through hospital referrals.  A social 
worker assists patients to assure that all sources of payment are tapped, but if a 
patient is referred “with no means to pay,” DCI “do[es] not turn them away.”  In 
response to the question:  “Do you provide service without regard to a patient’s 
ability to pay at your facilities?” the answer was “That’s true.”  DCI’s indigency 
policy, however, expressly states that the “indigence policy is not a charity or gift 
to patients.  DCI retains all rights to refuse to admit and treat a patient who has 
no ability to pay.”  (Emphasis added.) 
January Term, 2010 
5 
 
{¶ 12} In his final determination, the Tax Commissioner denied the 
exemption, stating that neither DCI’s acceptance of reimbursement from 
Medicare and Medicaid nor its write-off of bad debt constituted a charitable act. 
{¶ 13} On appeal, the BTA determined that DCI’s West Chester clinic did 
not qualify for exemption under R.C. 5709.12(B) because, “[a]s DCI concedes, it 
provides no free or charitable service at the subject property.”   Dialysis Clinic, 
Inc. v. Levin (Nov. 24, 2009), BTA No. 2006-V-2389, at 12.  The BTA also 
concluded that DCI could not qualify under R.C. 5709.121 because DCI was not a 
“charitable institution.”  The BTA relied heavily on the indigency policy’s 
statement that no gift of service is intended and that DCI reserves the right to 
refuse treatment based on inability to pay.  Id. at 13-14.  The BTA could discern 
no distinction between DCI and for-profit dialysis clinics apart from the DCI’s 
use of its excess revenue.  Id. at 13.  As for DCI’s contributions to kidney 
research, the BTA held that DCI could not claim charitable status vicariously 
based on the charitable nature of those to whom it contributed.  Id. 
{¶ 14} Finally, the BTA agreed with the commissioner that the record 
showed no unreimbursed free or charity care at the West Chester clinic.  Because 
DCI did not present a charity-care figure, the BTA attempted to construe one from 
the record.  As a nationwide charity-care figure for all DCI facilities, the BTA 
used the Medicare “bad-debt charity write-off” figure for October 2006 through 
September 2007:  that write-off amounted to under $6.7 million, which was 1.27 
percent of $526,891,082 in charges generated for that period.  Id. at 16.  Although 
the BTA also gave reasons for not regarding the write-off as charitable care, the 
BTA stated that if the percentage that was written off were viewed as charity care, 
it would be “insufficient to meet the charitable service standards required for 
exemption.”  Id. 
{¶ 15} DCI has appealed, and we affirm the BTA’s decision. 
II. Analysis 
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{¶ 16} This appeal questions the BTA’s interpretation of the charitable-
purpose exemption.  Under R.C. 5709.12(B), “[r]eal and tangible personal 
property belonging to institutions that is used exclusively for charitable purposes 
shall be exempt from taxation.”   Furthermore, under R.C. 5709.121(A), “[r]eal 
property and tangible personal property belonging to a charitable or educational 
institution * * * shall be considered as used exclusively for charitable * * * 
purposes by such institution * * * if it meets” one of the specified requirements 
under that statute. 
{¶ 17} DCI seeks exemption primarily under R.C. 5709.121(A)(2). “To 
fall within the terms of R.C. 5709.121, property must (1) be under the direction or 
control of a charitable institution * * *, (2) be otherwise made available ‘for use in 
furtherance of or incidental to’ the institution’s ‘charitable * * * purposes,’ and 
(3) not be made available with a view to profit.”  Cincinnati Nature Ctr. Assn. v. 
Bd. of Tax Appeals (1976), 48 Ohio St.2d 122, 125, 2 O.O.3d 275, 357 N.E.2d 
381, quoting R.C. 5709.121(A)(2).  We hold that the BTA acted reasonably and 
lawfully in determining that DCI does not qualify as a “charitable institution.” 
A.  Property does not qualify for exemption under R.C. 5709.121 simply because 
it is owned by, and used to further purposes of, an entity that enjoys exempt status 
under Section 501(c)(3) of the Internal Revenue Code 
{¶ 18} When a BTA decision is appealed, this court looks to see if the 
decision was “reasonable and lawful.”  Satullo v. Wilkins, 111 Ohio St.3d 399, 
2006-Ohio-5856, 856 N.E.2d 954, ¶ 14.  This means that “ ‘[t]he BTA is 
responsible for determining factual issues and, if the record contains reliable and 
probative support for these BTA determinations,’ ” we will affirm.  Id., quoting 
Am. Natl. Can Co. v. Tracy (1995), 72 Ohio St.3d 150, 152, 648 N.E.2d 483.  On 
the other hand, we “will not hesitate to reverse a BTA decision that is based on an 
incorrect legal conclusion.”  Id., quoting Gahanna-Jefferson Local School Dist. 
Bd. of Edn. v. Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789. 
January Term, 2010 
7 
 
{¶ 19} DCI contends that because “the provision of nonprofit medical 
care is charitable,” it should be recognized as a “charitable institution” for 
purposes of R.C. 5709.121.  Amicus curiae Ohio Hospital Association (“OHA”) 
further explains DCI’s legal argument.  OHA refers to R.C. 5709.12(B) and 
5709.121 as “two independent property-tax exemptions for charitable property.”  
According to OHA, R.C. 5709.12(B) “focuses on the specific use of the 
property,” while R.C. 5709.121 conditions exemption “not [on] the uses of the 
property, but [on] the general activities and purposes of the owner.”  OHA argues 
that R.C. 5709.121 affords an exemption “[s]o long as an institution is charitable 
or educational” and to qualify for that exemption, “its property only need be used 
incidentally to charitable or educational purposes.”  (Emphasis sic.) 
{¶ 20} But this interpretation significantly expands the scope of the 
property-tax exemption for facilities that provide healthcare services.  DCI 
focuses on the “high bar” set by the IRS in qualifying institutions for tax-exempt 
status pursuant to Section 501(c)(3) of the Internal Revenue Code, arguing that 
the federal status by itself “militates heavily in favor of finding it to be a 
‘charitable institution.’ ”  OHA is more explicit: “If an institution with a 
charitable or educational purpose qualifies as a Section 501(c)(3) entity (exempt 
from taxation under Section 501(a)), it likewise should qualify as charitable or 
educational under R.C. 5709.121(A).”  In other words, a Section 501(c)(3) 
nonprofit corporation should also be characterized as a “charitable institution” 
under Ohio law. 
{¶ 21} This expansive construction of R.C. 5709.121 is inconsistent with 
the legislative purpose behind its enactment and with ordinary principles of 
statutory construction for three reasons. 
{¶ 22} First, R.C. 5709.121 constitutes a refinement of R.C. 5709.12(B).  
Section 5709.121 does not declare any property to be exempt but links certain 
property uses to R.C. 5709.12(B)’s exclusive-charitable-use exemption.  Special 
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treatment under R.C. 5709.121 depends on the owner’s qualifying as a “charitable 
or educational” institution. 
{¶ 23} Second, R.C. 5709.121 was enacted to address a restriction on the 
availability of exemption under R.C. 5709.12(B).  Historically, the exemption for 
charitable use had not been permitted when the owner had leased the property to 
another, even if that lessee was using the property for charitable purposes.  First 
Baptist Church of Milford v. Wilkins, 110 Ohio St.3d 496, 2006-Ohio-4966, 854 
N.E.2d 494, ¶ 12, quoting Zangerle v. State ex rel. Gallagher (1929), 120 Ohio 
St. 139, 145, 165 N.E.709 (Day, J., concurring) (“ ‘ownership and use for 
charitable purposes must coincide’ ”); Lincoln Mem. Hosp., Inc. v. Warren 
(1968), 13 Ohio St.2d 109, 110, 42 O.O.2d 327, 235 N.E.2d 129 (exemption was 
unavailable because the use of the property as a hospital was not the owner’s use); 
Northeast Ohio Psych. Inst. v. Levin, 121 Ohio St.3d 292, 2009-Ohio-583, 903 
N.E.2d 1188, ¶ 11 (under R.C. 5709.12(B), “it is the owner’s use of the property, 
not a lessee’s use, that determines whether the property should be exempted” 
[emphasis omitted]). 
{¶ 24} Under R.C. 5709.121, when the owner qualifies as a charitable 
institution, property used exclusively for charitable purposes2 is exempt if the 
property is (i) leased to another charitable institution and used for charitable 
purposes, R.C. 5709.121(A)(1)(b), or (ii) made available under the control of the 
owner for use in furtherance of the owner’s charitable purposes, R.C. 
5709.121(A)(2).  This limited expansion of the charitable-use exemption granted 
by R.C. 5709.12(B) constitutes the central purpose behind R.C. 5709.121’s 
enactment.  See First Baptist Church of Milford at ¶ 16, quoting White Cross 
Hosp. Assn. v. Bd. of Tax Appeals (1974), 38 Ohio St.2d 199, 203, 67 O.O.2d 224, 
311 N.E.2d 862 (Stern, J., concurring) (“ ‘the overall purpose of R.C. 5709.121 is 
                                                 
2.  The charitable-use exemption that R.C. 5709.121 specifically extends to certain performing arts 
centers and other types of use is not at issue in this case. 
January Term, 2010 
9 
 
to declare that the ownership and use of property need not coincide for that 
property to be tax exempt’ ”).  Although R.C. 5709.121 does expand the scope of 
the charitable-use exemption, this expansion has a narrower purpose than that 
which DCI and OHA advance.3    We have stated that “R.C. 5709.121 does not 
itself grant any exemption.  It merely sets forth certain situations in which real 
and personal property belonging to charitable or educational institutions * * * 
may be considered as used exclusively for charitable * * * purposes.”  First 
Baptist Church of Milford at ¶ 16; Am.Sub.H.B. No. 817, 133 Ohio Laws, Part 
III, 2646 (title of the bill enacting R.C. 5709.121 states that its purpose is to 
“clarify the exemption from taxation of property belonging to a charitable 
institution” [emphasis added]). 
{¶ 25} Third, DCI’s argument would conflate Ohio’s property-tax 
exemption with standards under federal law for tax-exempt charities.  We have 
already rejected that contention, stating that “tying charitable use so tightly to 
Congress’s policy goals is wrong because Congress does not define the scope of 
charitable use under Ohio law.”  NBC-USA Hous., Inc.-Five v. Levin, 125 Ohio 
St.3d 394, 2010-Ohio-1553, 928 N.E.2d 715, ¶ 20. 
{¶ 26} Our case law has predicated entitlement to the charitable-use 
exemption on services being provided “on a nonprofit basis to those in need, 
without regard to race, creed, or ability to pay.”  (Emphasis added.)  Church of 
God in N. Ohio, Inc. v. Levin, 124 Ohio St.3d 36, 2009-Ohio-5939, 918 N.E.2d 
981, ¶ 19, citing Vick v. Cleveland Mem. Med. Found. (1965), 2 Ohio St.2d 30, 31 
O.O.2d 16, 206 N.E.2d 2, paragraph two of the syllabus.  In contrast, federal tax 
law affords a charitable exemption on a less restrictive basis.  See Rev. Rul. 69-
                                                 
3.  The Legislative Service Commission’s Final Bill Analysis of Am.Sub.H.B. No. 817, 133 Ohio 
Laws, Part III, 2646, refers to the exemption at R.C. 5709.12(B) and states that R.C. 5709.121 
“expands the present tax exemption” to encompass property “under a lease or contract with the 
owner,” providing relief from the rule that “the ownership of the property and its use must 
coincide.” 
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545, 1969-2 C.B 117; Rev. Rul. 83-157, 1983-2 C.B. 94; M. Hall & J. Colombo, 
The Charitable Status of Nonprofit Hospitals:  Toward a Donative Theory of Tax 
Exemption (1991), 66 Wash.L.Rev. 307, 320-321 (in Rev. Rul. 69-545, the IRS 
“abandoned the charity care requirement” and “adopted a ‘per se’ rule” that “an 
entity engaged in the ‘promotion of health’ for the general benefit of the 
community is pursuing a charitable purpose, even though a portion of the 
community, such as indigents, are [sic] excluded from participation” [emphasis 
added]).  We reject a reading of R.C. 5709.121 that essentially substitutes more 
lenient federal-law standards for the well-developed Ohio law of charitable use. 
B.  An institution is “charitable” under R.C. 5709.121 only if its core activities 
qualify as charity under the standards for determining the charitable use of 
property pursuant to R.C. 5709.12(B) 
{¶ 27} We have held that the determination of an owner’s status as a 
“charitable institution” under R.C. 5709.121 requires a review of the “charitable 
activities of the taxpayer seeking the exemption.”  OCLC Online Computer 
Library Ctr, Inc. v. Kinney (1984), 11 Ohio St.3d 198, 201, 11 OBR 509, 464 
N.E.2d 572; see also Northeast Ohio Psych. Inst., 121 Ohio St.3d 292, 2009-
Ohio-583, 903 N.E.2d 1188, ¶ 14.  Activities have been deemed to be charitable if 
they accord with the standard of charity that we have developed when 
determining the charitable use of property directly under R.C. 5709.12(B). 
{¶ 28} In Northeast Ohio Psych. Inst., a nonprofit entity leased property 
to another entity that furnished allegedly charitable psychiatric services to the 
general public.  The property’s owner and lessor sought a tax exemption, claiming 
that it could qualify as a charitable institution under R.C. 5709.121.  Although the 
property owner qualified as a charitable entity under Section 501(c)(3) of the 
Internal Revenue Code, we did not view that status as determinative.  Instead, we 
reviewed the evidence to determine whether the character of the owner’s activities 
was charitable.  We noted that in addition to leasing part of the building in 
January Term, 2010 
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question to the psychiatric-services provider, the owner leased the remainder of 
the building to other tenants, thereby generating significant revenue.  Northeast 
Ohio Psych. Inst. at ¶ 8, 9.  The owner also furnished psychiatric-staffing services 
at other locations, which constituted another source of substantial revenue.  Id. at 
15. The exemption was denied. 
{¶ 29} Similarly, in OCLC, 11 Ohio St.3d 198, 11 OBR 509, 464 N.E.2d 
572, we rejected a claim that a nonprofit corporation that furnished services to 
libraries for a fee that exceeded their cost could qualify as a charitable institution 
for purposes of R.C. 5709.121.  We noted that the owner was essentially 
advancing a claim of vicarious exemption:  it sought to exempt its own property 
because it provided services to libraries, which in turn were charitable institutions.  
Id. at 200.  The owner’s activities, however, “more closely resemble[d] those of a 
publisher of library materials or a data base firm specializing in information 
retrieval.”  Id. at 201.  The owner also “engaged in fee paying research projects 
for the private gain of commercial enterprises,” an endeavor that “preclude[d] the 
issuance of a charitable tax exemption.”  Id. 
{¶ 30} Because DCI’s core activity involves the provision of a healthcare 
service, DCI would qualify as a “charitable institution” under R.C. 5709.121 only 
if it provided service “on a nonprofit basis to those in need, without regard to 
race, creed, or ability to pay.”  Church of God in N. Ohio, 124 Ohio St.3d 36, 
2009-Ohio-5939, 918 N.E.2d 981, ¶ 19, citing Vick, 2 Ohio St.2d 30, 31 O.O.2d 
16, 206 N.E.2d 2, paragraph two of the syllabus. Applying this standard, we must 
determine whether the BTA acted reasonably and lawfully when it found that DCI 
did not qualify as a charitable institution. 
C.  The BTA Acted Reasonably and Lawfully in Determining That  
DCI is not a Charitable Institution 
{¶ 31} In finding that DCI did not qualify as a “charitable institution” for 
purposes of R.C. 5709.121, the BTA addressed three principal factors. 
SUPREME COURT OF OHIO 
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{¶ 32} First, the BTA found that DCI charged all patients at the West 
Chester site – and most patients at its other facilities – for the services it provides.  
The BTA echoed the commissioner’s position that the provision of free, 
unreimbursed care constitutes an essential part of a tax-exemption claim for a 
healthcare-services provider.  But to the extent that the BTA thought that DCI had 
to provide some threshold level of unreimbursed care, we disagree, as will be 
discussed. 
{¶ 33} Second, the BTA found that DCI could not base its claim on the 
donation of surplus revenue to kidney research, because such a claim would 
constitute the type of “vicarious exemption” that we rejected in OCLC, 11 Ohio 
St.3d 198, 11 OBR 509, 464 N.E.2d 572.  The BTA is correct.  DCI may not 
establish its own core activity as charitable by pointing to a benefit that it confers 
upon another entity whose activity is charitable.4  “It is only the use of property in 
charitable pursuits that qualifies for tax exemption, not the utilization of receipts 
or proceeds that does so.”  Hubbard Press v. Tracy (1993), 67 Ohio St.3d 564, 
566, 621 N.E.2d 396 ; Wehrle Found. v. Evatt (1943), 141 Ohio St. 467, 26 O.O. 
29, 49 N.E.2d 52, paragraph five of the syllabus (“Property held by a nonprofit 
corporation for the purpose of ultimate distribution to such selected organizations 
as are operated for religious, charitable, scientific, literary or educational purposes 
* * * is not exempt from taxation under Section 5353, General Code [the 
precursor to R.C. 5709.12(B)]”). 
{¶ 34} Third, the BTA emphasized that DCI’s indigency policy explicitly 
stated that it was “not a charity or gift to patients [and that] DCI retains all rights 
to refuse to admit and treat a patient who has no ability to pay.”  This statement 
                                                 
4.  OHA cites Akron Golf Charities, Inc. v. Limbach (1987), 34 Ohio St.3d 11, 516 N.E.2d 222, 
for the proposition that donating proceeds can qualify an entity as charitable.  That case is 
inapposite because it did not involve a claim of real-property exemption but rather of sales-and-
use-tax exemption under former R.C 5739.02(B)(12).  Akron Golf Charities was an organization 
whose sole purpose was to raise funds for charity by staging golf tournaments.  DCI is not such an 
institution, with the result that the earlier case does not apply. 
January Term, 2010 
13 
 
contradicts the assertion that DCI is committed to provide services on a 
nondiscriminatory basis, which is an essential prerequisite for a healthcare 
provider to qualify property for exemption.  DCI argues that its articles of 
incorporation set forth its charitable purpose and that other evidence demonstrates 
that in actuality persons are not turned away for inability to pay.  We are not 
persuaded, however, that this evidence required the BTA to find that DCI satisfied 
the nondiscrimination requirement, given that DCI’s own policy statement 
explicitly reserved the right to refuse to treat indigent patients. 
{¶ 35} DCI contends that the legal constraints imposed on it as a 
Medicare provider excuse it from complying with Ohio’s prerequisites for 
obtaining a charitable-use exemption. This is unpersuasive. First of all, the 
Medicare statutes and regulations cited stop short of requiring DCI to adopt the 
disclaimer of charity set forth in its indigency policy.  Second, even if Medicare 
regulations constrain DCI so that it cannot act as a charity according to Ohio’s 
definition, it is still barred from obtaining a charitable-use tax exemption.  For just 
as federal law does not establish the elements of Ohio’s tax exemption, federal 
law cannot excuse an entity’s noncompliance with those elements.  The General 
Assembly, rather than the courts, must determine whether Medicare providers 
should enjoy a property-tax exemption, and if so, the scope of such an exemption. 
D.  The operation of the West Chester facility does not qualify as an 
exclusively charitable use of property under R.C. 5709.12(B) 
{¶ 36} In addition to finding that DCI had not proven that it qualified as a 
charitable institution under R.C. 5709.121, the BTA also made a separate finding 
that “DCI does not qualify for exemption under R.C. 5709.12(B) as an institution 
that uses the property exclusively for charitable purposes.”  Dialysis Clinic, Inc., 
BTA No. 2006-V-2389, at 12.  It is well established that even if it does not 
qualify as a charitable institution, DCI would be entitled to exemption from tax if 
it showed that the operations at a particular facility constitute an exclusively 
SUPREME COURT OF OHIO 
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charitable use of that particular parcel of real property.  See Highland Park 
Owners, Inc. v. Tracy (1994), 71 Ohio St.3d 405, 644 N.E.2d 284 (although 
homeowner’s association that owned real property was not a charitable institution, 
its use of property as a public park did constitute an exclusively charitable use that 
was entitled to exemption). 
{¶ 37} Under the circumstances of this case, however, the determination 
of DCI’s exemption claim under R.C. 5709.12(B) does not significantly differ 
from the evaluation of the claim under R.C. 5709.121.  Nothing about the 
operation of the clinic in West Chester differs from the core activities of DCI that 
were reasonably and lawfully found not to qualify DCI as a charitable institution.  
The West Chester facility itself does not qualify for exemption. 
E.  An institution need not show a particular percentage of care that is 
unreimbursed if it proves its commitment to providing care on a 
nondiscriminatory basis 
{¶ 38} The Tax Commissioner argues that for a property-tax exemption, 
case law imposes the requirement that “a healthcare provider furnish[  ] sufficient 
services to those that lack the financial means to pay for such services,” meaning 
those who lack sufficient assets or insurance.  The record here shows that a person 
at the West Chester facility who lacks financial means to pay is usually entitled to 
benefits under Medicare or Medicaid, or both.  DCI’s decision to serve these 
patients to some extent qualifies as the provision of care to persons who otherwise 
lack the means to afford it. 
{¶ 39} But the commissioner’s argument goes a step further.  When 
asserting that a provider must furnish services to patients who “lack the financial 
means” to pay for healthcare, the commissioner means that a provider must 
furnish services to those patients who do not qualify for benefits under Medicare 
or Medicaid – or at least those patients for whom benefits have not been obtained.  
In essence, the commissioner required DCI to show that it provided unreimbursed 
January Term, 2010 
15 
 
care – that is, care financed by DCI itself from funds derived either from 
charitable donations or operating surpluses.  The denial of DCI’s exemption claim 
rested in part on the fact that no unreimbursed care was quantified at the West 
Chester facility and that the amount of such care at all at DCI’s Ohio clinics was 
small.  In affirming the commissioner’s determination, the BTA stated that if the 
1.27 percent bad-debt write-off that related to Medicare patients at its clinics were 
viewed as charity care, the percentage would be “insufficient to meet the 
charitable service standards required for exemption.”  Dialysis Clinic, Inc., BTA 
No. 2006-V-1389, at 16. 
{¶ 40} DCI contends that contrary to the pronouncements of the 
commissioner and the BTA, case law does not require a threshold amount of 
unreimbursed care.  We agree.  Because of the existence of Medicare and 
Medicaid, which reimburse providers for the provision of dialysis services to the 
indigent, few patients actually receive free care that is wholly unreimbursed.  A 
threshold amount of unreimbursed care is not required, and the commissioner’s 
contrary assertion is unfounded. 
{¶ 41} The commissioner relies on O’Brien v. Physicians Hosp. Assn. 
(1917), 96 Ohio St. 1, 116 N.E. 975; Cleveland Osteopathic Hosp. v. Zangerle 
(1950), 153 Ohio St. 222, 41 O.O. 243, 91 N.E.2d 261; Lincoln Mem. Hosp., Inc. 
v. Warren (1968), 13 Ohio St.2d 109, 42 O.O.2d 327, 235 N.E.2d 129; and 
Bethesda Healthcare, Inc. v. Wilkins, 101 Ohio St.3d 420, 2004-Ohio-1749, 806 
N.E.2d 142.  Comparing the first three cases, the commissioner seeks to extract a 
principle that some sizeable percentage of care must be unreimbursed.  But this 
theory ignores the reasoning of the cases. 
{¶ 42} In O’Brien, the court affirmed the grant of a property-tax 
exemption but observed that in accepting private-pay patients, an institution must 
not take on so many paying patients that it cannot accommodate a “usual and 
ordinary number of indigent patients applying for admission.”  Id., paragraph six 
SUPREME COURT OF OHIO 
16 
 
of the syllabus.  In the age of Medicare and Medicaid, the usual and ordinary 
indigent patient may have access to government benefits, and the modern 
healthcare provider is not required to forego the pursuit of those benefits to 
qualify for charitable status. 
{¶ 43} The property-tax exemption granted in O’Brien was not granted to 
the owner in Cleveland Osteopathic; the court’s primary concern in that case was 
private profit rather than degree of public service.  The hospital had appeared to 
be a means by which the member physicians secured income and profits.  Charges 
to the patient led to a profit in excess of the physician’s salary, and the “ ‘fixing of 
[each physician’s] salary [was] merely a device for securing the profits of the 
institution and not merely compensation for services rendered.’ ”  153 Ohio St. at 
228, 41 O.O. 243, 91 N.E.2d 261, quoting 2 Restatement of the Law, Trusts 
(1935) 1167, Section 376, comment b. 
{¶ 44} Likewise, the commissioner’s reading of Lincoln Mem. Hosp. 
ignores the reason that this court denied the exemption.  In Lincoln, a for-profit 
corporate owner’s creation of a nonprofit corporation to lease the property was a 
sham created to pay the for-profit owner’s financial obligations.  13 Ohio St.2d at 
110, 42 O.O.2d 327, 235 N.E.2d 129.  While the court noted the paucity of 
nonpaying patients, that was not the dispositive consideration. 
{¶ 45} Finally, Bethesda is inapplicable.  In Bethesda, a nonprofit 
corporation sought an exemption for the portion of a building that it leased to 
itself for accounting purposes; the area housed a fitness facility that was open 
only to dues-paying members and their guests, with minimal access for the public.  
The exemption was denied, for although a small number of memberships were 
given away through scholarships, analogous to giving “free care,” the facility 
itself was not open to the public at large. That is not the situation here. 
{¶ 46} Although the commissioner’s position is incorrect on the issue 
whether a minimum percentage of unreimbursed care is required for a charitable 
January Term, 2010 
17 
 
entity, the record contains sufficient support for the BTA’s ultimate findings.  
Accordingly, the property-tax exemption for the West Chester facility was 
properly denied. 
III.  Conclusion 
{¶ 47} For the foregoing reasons, the BTA acted reasonably and lawfully 
when it upheld the Tax Commissioner’s denial of DCI’s claim for a charitable-use 
exemption.  We therefore affirm the decision of the BTA. 
Decision affirmed. 
 
BROWN, C.J., and O’CONNOR and CUPP, JJ., concur. 
 
PFEIFER, LUNDBERG STRATTON, and O’DONNELL, JJ., dissent. 
__________________ 
 
O’DONNELL, J., dissenting. 
{¶ 48} While I concur with the majority’s conclusion that no minimum 
percentage of unreimbursed care is required in order to qualify for a charitable-
use exemption, I disagree with the majority’s determination that the Dialysis 
Clinic, Inc. (“DCI”), is not entitled to the exemption on the ground that it does not 
provide service in a nondiscriminatory manner because it reserves the right to 
refuse treatment to indigent patients in its effort to comply with Medicare 
regulations.  The reservation of the right to refuse treatment is not proof that DCI 
denies services to indigents.  To the contrary, the evidence shows that DCI 
provides services to all patients, irrespective of their ability to pay.  Because 
providing service to indigent patients is a charitable act, in my view, DCI 
qualifies as a charitable institution and is tax exempt.  Moreover, because DCI 
provides services at the West Chester clinic, the clinic is used exclusively for 
charitable purposes and the property is exempt from tax.  Accordingly, I would 
assert that the determination by the Board of Tax Appeals (“BTA”) denying DCI 
a charitable-use tax exemption was unreasonable and unlawful. 
Facts 
SUPREME COURT OF OHIO 
18 
 
{¶ 49} DCI is a nonprofit entity that is tax exempt under Section 
501(C)(3) of the Internal Revenue Code; it provides dialysis services to patients 
who suffer from end-stage renal disease, and it allocates half its excess revenue to 
support kidney research and the other half to subsidize its own services.  DCI’s 
charter5 explicitly prohibits it from operating for “pecuniary gain or profit.” 
{¶ 50} Although many of DCI’s patients are covered by Medicare or 
Medicaid, some patients remain responsible for 20 percent of the services 
rendered.  However, when a patient is indigent and DCI is unable to collect a 
copayment or deductible, DCI writes off the portion that the patient is unable to 
pay as a bad-debt expense, eliminating the patient’s responsibility to pay.  In 
addition, DCI claimed that it would provide care without charge to patients who 
are ineligible for or are waiting to qualify for Medicare or Medicaid.  In its efforts 
to comply with Medicare regulations that prohibit a clinic from providing services 
to non-Medicare patients at a fee lower than the one charged to Medicare patients, 
DCI established a policy reserving the right to refuse treatment to those who 
cannot pay.  An administrator with DCI testified that DCI does not deny services 
to individuals “with no means to pay.”  The record does show that DCI provides 
services to indigent patients and adjusts the balance as a “Non-contracted Write-
off” if patients do not have insurance coverage.  As DCI staff attorney William 
Horn testified before the BTA, “if there are not [sic] payment sources, then 
[service] ends up being free to [patients] if they have no sources to pay.” 
Law and Analysis 
{¶ 51} Our standard of review for appeals from the BTA is whether its 
decisions are “ ‘reasonable and lawful.’ ”  Satullo v. Wilkins, 111 Ohio St.3d 399, 
2006-Ohio-5856, 856 N.E.2d 954, ¶ 14, quoting Columbus City School Dist. Bd. 
                                                 
5.  DCI is a Tennessee corporation, and its charter is the equivalent of articles of incorporation.  
See 
Tennessee 
Department 
of 
State, 
Filing 
Guide, 
Nonprofit 
Corporations, 
http://www.state.tn.us/sos/forms/fg-np.pdf (accessed October 6, 2010). 
 
January Term, 2010 
19 
 
Of Edn. v. Zaino (2001), 90 Ohio St.3d 496, 497, 739 N.E.2d 783.  This court “ 
‘will not hesitate to reverse a BTA decision that is based on an incorrect legal 
conclusion.’ ” Id., quoting Gahanna-Jefferson Local School Dist. Bd. of Edn. v. 
Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789. 
{¶ 52} In this case, DCI sought an Ohio charitable use tax exemption 
pursuant to R.C. 5709.12(B) and R.C. 5709.121(A)(2).  In Bethesda Healthcare, 
Inc. v. Wilkins, 101 Ohio St.3d 420, 2004-Ohio-1749, 806 N.E.2d 142, ¶ 27, we 
quoted approvingly from the concurring opinion of Justice Stern in White Cross 
Hosp. Assn. Bd. of Tax Appeals (1974), 38 Ohio St.2d 199, 203, 67 O.O.2d 224, 
311 N.E.2d 199, which stated that “ ‘any institution, irrespective of its charitable 
or noncharitable character, may take advantage of a tax exemption [pursuant to 
R.C. 5709.12(B)] if it is making exclusive charitable use of its property.’ ”  
(Emphasis sic.)  On the other hand, “R.C. 5709.121 does not itself grant any 
exemption.  It merely sets forth certain situations in which real and personal 
property belonging to charitable or educational institutions * * * may be 
considered as used exclusively for charitable * * * purposes.”  First Baptist 
Church of Milford v. Wilkins, 110 Ohio St.3d 496, 2006-Ohio-4966, 854 N.E.2d 
494, ¶ 16.  In evaluating an entity’s charitable status, this court examines the 
charitable activities of the taxpayer; in evaluating a property’s charitable use, this 
court examines the charitable activities that occur on the property.  See OCLC 
Online Computer Library Ctr., Inc. v. Kinney (1984), 11 Ohio St.3d 198, 201, 11 
OBR 509, 464 N.E.2d 572 (activities of the taxpayer); Highland Park Owners, 
Inc. v. Tracy (1994), 71 Ohio St.3d 405, 406-407, 644 N.E.2d 284 (activities 
undertaken at the property). 
{¶ 53} In Church of God in N. Ohio, Inc. v. Levin, 124 Ohio St.3d 36, 
2009-Ohio-5939, 918 N.E.2d 981, ¶ 19, we explained that “the provision of 
medical or ancillary healthcare services qualifies as charitable if those services are 
provided on a nonprofit basis to those in need, without regard to race, creed, or 
SUPREME COURT OF OHIO 
20 
 
ability to pay.”  Id., citing Vick v. Cleveland Mem. Med. Found. (1965), 2 Ohio 
St.2d 30, 31 O.O.2d 16, 206 N.E.2d 2, paragraph two of the syllabus. 
{¶ 54} In denying DCI’s application for a charitable use exemption, the 
BTA concluded that DCI does not conduct any charitable activity at its West 
Chester clinic because it “charges all patients for dialysis services, voluntarily 
enters contracts with government and private insurers to set charges for the 
provision of these services, and does not donate any of its services without charge 
or at a reduced charge.”  Dialysis Clinic, Inc. v. Levin (Nov. 24, 2009), BTA No. 
2006-V-2389, at 13.  After noting DCI’s reservation of its right not to treat 
indigent patients, the BTA concluded that DCI’s practice of writing off 
uncollectible debt does not constitute charity, noting that it could find “no 
evidence of DCI acting as a donor at any time by relinquishing its legal right to 
payment from patients for services provided.”  Id. at 14.  According to the BTA, 
“DCI is not providing its services without an expectation that it will be 
compensated” by Medicare, Medicaid, or a private insurer and has not shown that 
it provided a requisite amount of unreimbursed care to be deemed a charitable 
institution. 
{¶ 55} While I agree with the majority that the BTA erroneously 
determined that a taxpayer must demonstrate a minimum threshold or percentage 
of unreimbursed care to qualify as a charitable institution, I would further 
maintain that DCI engages in charitable activities and qualifies as a tax-exempt 
charitable institution.  DCI’s reservation of the right to refuse treatment to 
indigent patients does not defeat its charitable status.  The evidence shows that 
DCI does not exercise this right but instead treats any patient regardless of the 
ability to pay and writes off any charges that insurance does not cover. 
{¶ 56} In my view, the Board of Tax Appeal’s conclusion that DCI does 
not engage in charitable activities because it reserves the right to refuse to treat 
indigent patients unduly restricts the definition of “charity” in a manner 
January Term, 2010 
21 
 
inconsistent with our previous interpretation of the term.  In accordance with our 
caselaw, DCI is charitable if it operates on a nonprofit basis and does not turn 
away individuals because of their inability to pay.  Contrary to the BTA’s 
conclusions, the charitable status of a nonprofit entity is not defeated because the 
entity reserves the right to refuse to treat an indigent individual when the 
institution treats all individuals regardless of ability to pay and does not collect 
payment from those who cannot pay.  In other words, reserving the right to deny 
treatment is not the same as denying treatment or collecting payment from 
indigent individuals.  See Taylor v. Meridia Huron Hosp. of Cleveland Clinic 
Health Sys. (2000), 142 Ohio App.3d 155, 157, 754 N.E.2d 810 (“reserving a 
right is not the same as actually exercising that right”); Barker v. Geotech Servs., 
Inc., 9th Dist. No. 22742, 2006-Ohio-3814, 2006 WL 2060556, ¶ 8 (same); see 
generally Gowdy v. United States (6th Cir.1969), 412 F.2d 525, 529 
(government’s reservation of the right to inspect the work of an independent 
contractor does not impose a duty on the government to exercise the right); 
Rawson v. Brown (1922), 104 Ohio St. 537, 547, 136 N.E. 209 (the rights of 
parties to a purchase option contract were not affected until the option was 
exercised). 
{¶ 57} Because there is no evidence in the record that DCI denies services 
to patients that cannot afford to pay and there is evidence that DCI writes off any 
charges incurred by patients who cannot pay, it is my view that DCI has 
established that it provides services “to those in need, without regard to * * * 
ability to pay” and therefore qualifies as a charitable institution pursuant to R.C. 
5709.121(A).  See, e.g., Vick, 2 Ohio St.2d 30, 33, 206 N.E.2d 2 (the hospital did 
not lose its charitable status because “[n]o one ha[d] ever been refused admittance 
to the hospital on the basis of race, creed, color or inability to pay”).  Further, 
because the West Chester clinic provides the same services in the same manner as 
SUPREME COURT OF OHIO 
22 
 
DCI, I believe that the clinic is used “exclusively for charitable purposes” 
pursuant to R.C. 5709.12(B). 
{¶ 58} Because DCI qualifies as a charitable institution and the West 
Chester clinic is used exclusively for charitable purposes, it should qualify for a 
tax exemption pursuant to R.C. 5709.12(B) and R.C. 5709.121(A).  Thus, I 
maintain that the BTA acted unreasonably and unlawfully when it denied the 
request for exemption.  Accordingly, I would reverse the decision of the BTA. 
 
PFEIFER and LUNDBERG STRATTON, JJ., concur in the foregoing opinion. 
__________________ 
 
Dinsmore & Shohl, L.L.P., Sean Callan, Seth Schwartz, and Sarah Herron, 
for appellant. 
 
Richard Cordray, Attorney General, and Ryan P. O’Rourke, Lawrence D. 
Pratt, and Alan P. Schwepe, Assistant Attorneys General, for appellee. 
 
Jones Day, Chad A. Readler, and Eric E. Murphy, urging reversal for 
amicus curiae Ohio Hospital Association. 
 
Brindza, McIntyre & Seed, L.L.P., David H. Seed, and Daniel McIntyre, 
urging affirmance for amici curiae Ohio School Boards Association, Ohio 
Association of School Business Officials, Buckeye Association of School 
Administrators, Ohio Job and Family Services Directors Association, County 
Commissioners Association of Ohio, Ohio Association of County Behavioral 
Health Authorities, Ohio Municipal League, Ohio Fire Chiefs Association, Ohio 
Parks and Recreation Association, Ohio Township Association, and Ohio Library 
Council. 
______________________