Opinion ID: 1625181
Heading Depth: 1
Heading Rank: 4

Heading: Charitable use.

Text: The present appeal is the second property tax exemption case involving Care to reach Iowa's appellate courts. Care's Ridgewood Care Center facility in Ottumwa, Iowa, has previously been denied a property tax exemption. Care Initiatives v. Board of Review, 488 N.W.2d 460, 463 (Iowa App.1992). The court of appeals concluded that Care had not shown by a preponderance of the evidence that the facilities were not used with a view to pecuniary profit. Id. However, in determining whether Creston Manor satisfies the statutory requirements for tax exemption, we make an independent evaluation of the use of the property by Care. Here, we must determine if the owner has established a charitable use of the property, not a use for monetary gain which inures to the benefit of private individuals. Among the factors we consider significant are the establishment and operation of the institution, the policies and practices relating to admission and retention of residents, the community support, and the benefits provided to the community.
Care is a nonprofit corporation with a temporary federal income tax exemption. Its stated purposes are charitable. Although the incorporator of Care was Greg Colip, two of the three initial directors, Terry Colip and Richard Young, were investment bankers. The initial board of directors of Care selected a new board on June 19, 1989. On that date the new board adopted resolutions to purchase the forty-one Iowa nursing homes for $63,500,000, to finance the acquisition and renovation of the facilities by loan with the Iowa Finance Authorities and the sale of $85,950,000 of tax exempt bonds through a designated underwriter, and to execute a management agreement with Britwill. Although the sale to Care had not been finalized, Graham, the newly elected President of Care, admitted as a practical matter, the deal was pretty well cut and was already in place by the time the board acted on June 19, 1989. Present at the board meeting were Whitehead, his attorney Tyrell Garth, and the bond underwriters. Two of the initial directors, Terry Colip and Richard Young, each realized approximately $2,555,000 gross profits out of the fees paid to the underwriters, Underwood, Neuhaus & Co., Incorporated, on the bond sale. After acquiring the Iowa nursing home facilities from Beverly, Whitehead and his company Ventana realized on the sale to Care a gross profit of $6,500,000 plus Ventana retained four Iowa nursing home properties. Under the management contract Britwill controls all day-to-day operations of Creston Manor. Britwill established policies and procedures including admission, discharge and transfer rights, quality of care, and the facility rate structure. The new board meets quarterly. The directors currently receive $1500 per board meeting plus expenses. Care's only employee, Graham, is paid $65,000 annually plus other benefits. Although it is not necessary that charitable contributions form a certain threshold percentage of an institution's budget before the institution can be considered charitable, it is important that contributions of money, goods, and services play some part in the establishment and operation of a charitable institution. Richards, 414 N.W.2d at 353. As we have stated: A statutory exemption does not depend alone on lofty or generous motives on the part of the donor. Although such motives are almost always involved in charitable institutions, something more is required in order to qualify for a property tax exemption. Atrium Village, 417 N.W.2d at 73. Here, no contribution of money, goods, or services was made in the establishment of Care or the acquisition of Creston Manor. Care's initial capitalization consisted entirely of debt. The sale of revenue bonds raised $85,950,000. In addition, Care secured $6,401,000 by loan from Ventana and the bond underwriters. Although Care is the owner, the board has surrendered almost all control of the operation to Britwill. These factors weigh heavily against Care's claim for exemption.
Care's general policies as implemented by Britwill apply to all Iowa facilities. Care has a policy to accept patients for admission without regard to their ability to pay. No financial statements or third-party guarantees are required. Room, gifts, endowments, or other lump-sum payments are not expected. No patient has ever been rejected for admission to Creston Manor because they could not afford to pay nor has any patient been discharged under such circumstances. Creston Manor does not discriminate between private pay and Title XIX patients. These facts indicate a charitable purpose and support the exemption claim. See Bethesda, 453 N.W.2d at 227.
In 1990, Creston Manor recorded nearly 5300 hours of volunteer services donated to the facility to enhance the quality of life and care for Creston Manor residents. This is approximately the same level of volunteer help received when the home was operating for profit by Beverly. The fact that volunteers assist for-profit nursing homes does not diminish the effect these services have in determining the charitable nature of the nursing home. Id.
Care claims it provides uncompensated care to the community and its residents. It does so by charging Title XIX patients, who account for forty-two percent of Creston Manor's residents, discounted rates. Care calculated it provided uncompensated care of $4.68 per patient day at Creston Manor totaling approximately $52,490 in 1990. However, the Iowa Department of Human Services (DHS) calculated the actual cost per patient day for Creston Manor as $42.30, compared with Care's calculation of $48.05. The Title XIX reimbursement rate for 1990 was $43.37 at Creston Manor; $1.07 higher than DHS' calculated average cost per patient day. Furthermore, the marginal cost per patient day of caring for Title XIX patients was $37.39 for Creston Manor; $5.98 less than the Title XIX reimbursement rate. Care urges its acceptance of hardship cases, patients who are not able to afford the full private pay rates and who fail to qualify for Title XIX, is charitable. However, Creston Manor has admitted only one hardship patient, and that patient was charged a rate in excess of the Title XIX rate and calculated on a thirty-day month, more than Care's calculated average cost.