Opinion ID: 846273
Heading Depth: 3
Heading Rank: 1

Heading: charitable institution

Text: It appears that the earliest examination of the term charitable institution, albeit brief, was conducted in Attorney General v. Common Council of Detroit, 113 Mich. 388, 71 N.W. 632 (1897). Construing a precursor to the current charitable institution exemption statute, [7] this Court determined that real estate of the Masonic Temple Association, the Harmonie Society, and the Arbeiter Society were not exempt from taxation. Id. at 390, 71 N.W. 632. Although this Court did not discuss the factual underpinnings of the decision, we did set forth this foundational principle: It is not enough, in order to exempt such associations from taxation, that one of the direct or indirect purposes or results is benevolence, charity, education, or the promotion of science. They must be organized chiefly, if not solely, for one or more of these objects. Id. An opportunity to construe the term charitable institution in a slightly different context presented itself in Michigan Sanitarium & Benevolent Ass'n v. Battle Creek, 138 Mich. 676, 101 N.W. 855 (1904). At issue in that case was a statute that, in conjunction with a predecessor to MCL 211.7 o (3), governed the tax exemption of property gifted to another with the condition that the property be used `for the purpose of founding or endowing a hospital or other charitable asylum within this State, for the care or relief of indigent or other sick or infirm persons....' Id. at 680, 101 N.W. 855, quoting 1897 CL 8288. A dispute arose when the respondent city taxed the petitioner's property because the respondent believed, among other things, that the petitioner was not using the property for charitable purposes as required by the statute. To determine whether the petitioner was a charitable hospital, it was necessary to examine the nature of the petitioner's activities. We observed first that the petitioner operated a hospital in which it treated sick and infirm persons. Id. at 682, 101 N.W. 855. We noted that the petitioner treated some patients for free and some at a reduced rate. Id. And while most of the petitioner's patients paid a regular schedule of prices fixed by [the petitioner's] management, id. at 682, 101 N.W. 855, we concluded, because the respondent did not show otherwise, that the charges collected from patients were not larger than were necessary to the successful maintenance of the institution. Id. at 682-683, 101 N.W. 855. Therefore, we determined that if we were to accept the respondent's position that to be considered charitable, the petitioner could accept no fees from patients, we would be adopting the untenable position that persons who dedicate a hospital to the public must pay taxes on that hospital unless they maintain the same from their private means. Id. at 683, 101 N.W. 855. We favored a different, more sensible, rule and held that a corporation is sufficiently charitable to entitle it to the privileges of the act when the charges collected for services are not more than are needed for its successful maintenance. Id. This Court next visited the meaning of charitable institution in Auditor General v. R. B. Smith Mem. Hosp. Ass'n, 293 Mich. 36, 38, 291 N.W. 213 (1940), where we again examined the predecessor to the current version of MCL 211.7 o. There, we approvingly noted an ALR discussion on tax exemption for charitable institutions: The determination of the exemption in a particular case seems to depend, in the last analysis, upon two things: First, whether the organization claiming the exemption is a charitable one; and, second, whether the property on which the exemption is claimed is being devoted to charitable purposes. In general, it may be said that any body not organized for profit, which has for its purpose the promotion of the general welfare of the public, extending its benefits without discrimination as to race, color, or creed, is a charitable or benevolent organization within the meaning of the tax exemption statutes. In determining whether the property is being devoted to charitable purposes within the meaning of the statute, the rule that tax exemptions are to be construed strictly is generally applied, with the result that, in the absence of a specific charter or statutory provision, no property owned by a charitable institution, but held as a source of income, can escape taxation, although the fact that a charge is made for benefits conferred, against those who are able to pay, in no way detracts from the charitable character of an organization. [ Id. at 38-39, 291 N.W. 213 quoting 34 ALR 634, 635.] Along with observing this ALR explanation, we relied on the definition we applied in Michigan Sanitarium, supra, and found that the facts of the case compelled the conclusion that the hospital was tax-exempt. For example, the hospital operated as a public hospital, rather than a private one, relying heavily on donations of money and volunteer work from the community. Id. at 40, 291 N.W. 213. It was maintained without anyone profiting monetarily from it, and it did not pay any dividends. Id. And surpluses, when there were any, were invested back into the hospital and used to maintain it. Id. Thus, we held that the hospital was entitled to tax exemption, pointedly noting that an institution does not lose its charitable character merely because in some years, instead of the usual deficit, it shows a small surplus which is used to supply needed equipment. Id. at 41, 291 N.W. 213. On the next occasion we construed the charitable institution exemption statute, we were faced with a petitioner's claim of disparity when two of its nursing homes were granted tax-exempt status, but one, Hillside Terrace, was not. Michigan Baptist, supra . We affirmed the city's decision to tax Hillside Terrace, cataloguing the following differences between one home owned by another association that was granted tax-exempt status and the one by the petitioner that was not. For instance, Hillside Terrace was funded entirely by loans, debentures, and resident fees. Michigan Baptist, supra at 667, 242 N.W.2d 749. In fact, the residents paid a substantial up-front sum and monthly fees thereafter. Id. at 667, 668, 242 N.W.2d 749. Hillside Terrace had losses for two consecutive years, although the petitioner admitted that, should the losses continue, it would raise the residents' fees to eliminate the deficit. Id. at 669, 242 N.W.2d 749. The petitioner had neither solicited nor received any gifts, despite that gifts to Hillside Terrace were tax-deductible. Id. at 667, 242 N.W.2d 749. The petitioner offered reduced rates to four of its 72 residents in one year and waived the fees for one other resident. Id. at 668, 242 N.W.2d 749. Residents were hand-selected by the establishment after an application process that asked them to fully detail their financial status and their health. Id. at 668-669, 242 N.W.2d 749. Those who could not show sufficient means or who were in less than reasonably good health were, in large part, rejected. Id. at 669, 242 N.W.2d 749. On the other hand, the other nursing home, the Anna Botsford Bach Home, was endowed by and partially financed through charitable contributions and annual charity drives. Id. at 674, 242 N.W.2d 749. Rather than rely on resident fees for its maintenance, operational costs were paid using principal and interest from the endowment fund. Id. The Bach Home residents did not pay the full cost of their care, nor were they expected to. Id. And residents were accepted on the basis of their lack of ability to find care elsewhere, not on the basis of being in good financial and physical health. Id. We found these differences critical and, thus, rejected the petitioner's equal protection claim that Hillside Terrace deserved the same tax exemption granted to the Bach Home. Id. at 674, 242 N.W.2d 749. In light of the fundamental differences in the way the homes were run, we held that the city's decision to treat the entities differently was fully justified. Moreover, we found that Hillside Terrace, while purported to exist for benevolent, charitable, and general welfare purposes, was not actually furthering those objectives. Id. at 671, 242 N.W.2d 749. Because of its selection process and resident-funded mechanism, we concluded that the home did not serve the elderly generally, but, rather, provide[d] an attractive retirement environment for those among the elderly who have the health to enjoy it and who can afford to pay for it. Id. at 671, 242 N.W.2d 749. This structure for the nursing home, we held, did not comport with the legislative intent behind the charitable institution exemption statute. Id. This Court again visited the meaning of the term charitable institution in Retirement Homes of the Detroit Annual Conference of the United Methodist Church, Inc., v. Sylvan Twp., 416 Mich. 340, 348-349, 330 N.W.2d 682 (1982), wherein we construed another previous version of the charitable institution exemption. [8] The petitioner in Retirement Homes sought tax exemption as a charitable institution for the apartment complex it operated in conjunction with a licensed nursing home and a licensed home for the aged. Id. at 343, 330 N.W.2d 682. While the two licensed care facilities had already been established as tax-exempt, the apartments were a new addition to the complex and had not yet been evaluated. Id. We accepted the Tax Tribunal's finding that the apartment building was not entitled to tax exemption merely by virtue of its association with the tax-exempt properties, and, thus, had to be examined separately. See id. at 346 n. 9, 330 N.W.2d 682. We then looked closely at how the apartment component of the complex was operated and found that the apartments differed little from the nursing home in Michigan Baptist, supra, that was not tax-exempt. We observed the Tax Tribunal's findings that residents were admitted on the basis of their health and ability to pay the monthly fee, which contradicted the petitioner's articles of incorporation. Id. We also noted the tribunal's finding that the apartments were merely `a method whereby [the apartment] residents assure themselves a bed in a nursing home upon becoming disabled' and `a convenient method of keeping a ready supply of prospective nursing home and old age home residents on hand'. Id. It was unclear whether the apartments were profitable, but we took care to note the juxtaposing propositions that while [a] corporation does not qualify for a tax exemption merely because it is structured to be nonprofit and in fact makes no profit, [b]y the same token, a nonprofit corporation will not be disqualified for a charitable exemption because it charges those who can afford to pay for its services as long as the charges approximate the cost of the services. Id. at 350 n. 15, 330 N.W.2d 682, citing Michigan Sanitarium, supra at 683, 101 N.W. 855; Auditor General, supra at 39, 291 N.W. 213; and Gull Lake Bible Conference Ass'n v. Ross Twp., 351 Mich. 269, 88 N.W.2d 264 (1958). We noted that apartment residents who became unable to pay the monthly fee were relocated into areas of the retirement homes' complex that would entitle them to government assistance, which, consequently, lifted the petitioner's burden of charity. Id. at 345-346, 330 N.W.2d 682. Commencing our legal analysis, we first sought the meaning of charity. Id. at 348, 330 N.W.2d 682. We noted the proposition pronounced in our past cases that to qualify for a charitable or benevolent tax exemption, property must be used in such a way that it `benefit[s] the general public without restriction'. Id. at 348, 330 N.W.2d 682 quoting Michigan Baptist, supra at 671, 242 N.W.2d 749, and citing Auditor General, supra at 38, 291 N.W. 213. Surveying case law from other jurisdictions, we also took note of a widely used definition that seemed to restate and elaborate on that principle, and which similarly seemed to have stood the test of time: [Charity]    [is] a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. [ Id. at 348-349, 330 N.W.2d 682, quoting Jackson v. Phillips, 96 Mass (14 Allen) 539 (1867) (emphasis deleted; alterations in original).] As such, we framed the pertinent question as follows: Does Retirement Homes operate the apartments in such a way that there is a `gift' for the benefit of `the general public without restriction' or `for the benefit of an indefinite number of persons'? Id. at 349, 330 N.W.2d 682. In light of the particular facts of the case, we concluded in the negative and explained our reasoning as follows: [T]here is no gift for the benefit of an indefinite number of persons or for the benefit of the general public without restriction in the operation of the apartments. The monthly fee is designed to cover all operating costs as well as to recover the construction costs of the apartments. While it does not appear that the apartments are operated for a profit, neither does it appear that the residents receive any significant benefit that they do not pay for. There is no gift to the residents. The operation of the apartments does not appear to benefit the general public. Its residents are chosen on the basis of their good health, their ability to pay the monthly charge, and, generally, their ability to live independently. [ Id. at 349-350, 330 N.W.2d 682.] Most recently, we applied the charitable institution microscope to an environmental organization engaged in conservation efforts, the promotion of natural resource management, and the protection of the rights of citizens to bear arms. Michigan United Conservation Clubs, supra at 665, 378 N.W.2d 737. To further these goals, the petitioner conducted or sponsored educational seminars and courses, published informational brochures, maintained a library, conducted lobbying, and administered a fund to oppose any movement to restrict gun ownership. Id. at 666-667, 378 N.W.2d 737. Restating the definition of charity set forth in Retirement Homes, supra, we concluded that the petitioner was not a charitable institution, although we rejected the Court of Appeals exclusive focus on the petitioner's lobbying activities. Id. at 673, 378 N.W.2d 737. And while we agreed that the petitioner did provide some services that could be deemed charitable gifts, we found that, on balance, the petitioner was organized to benefit its paying members rather than to benefit the general public without restriction or for the benefit of an indefinite number of persons. Id. at 673, 378 N.W.2d 737. Several common threads can be found in this line of cases. First, it is clear that the institution's activities as a whole must be examined; it is improper to focus on one particular facet or activity. In that sense, the inquiry pertains more to whether an institution could be considered a charitable one, rather than whether the institution offers charity or performs charitable work. So it is the overall nature of the institution, as opposed to its specific activities, that should be evaluated. A second indispensable principle is that the organization must offer its charitable deeds to benefit people who need the type of charity being offered. In a general sense, there can be no restrictions on those who are afforded the benefit of the institution's charitable deeds. This does not mean, however, that a charity has to serve every single person regardless of the type of charity offered or the type of charity sought. Rather, a charitable institution can exist to serve a particular group or type of person, but the charitable institution cannot discriminate within that group. The charitable institution's reach and preclusions must be gauged in terms of the type and scope of charity it offers. From these precepts, it naturally follows that each case is unique and deserving of separate examination. Consequently, there can be no threshold imposed under the statute. The Legislature provided no measuring device with which to gauge an institution's charitable composition, and we cannot presuppose the existence of one. To say that an institution must devote a certain percentage of its time or resources to charity before it merits a tax exemption places an artificial parameter on the charitable institution statute that is unsanctioned by the Legislature. The Tax Tribunal and the Court of Appeals focused exclusively on the dollar amount of free health care petitioner gifted as part of its charity care program, looking no further into the nature of petitioner's organization. This was error because it is clear that both tribunals had in mind a monetary threshold that is not only not discernable from the statute, but that would be, by its very nature, quite arbitrary. As petitioner aptly pointed out, there are multiple reasons why inventing legislative intent in this regard would be ill-advised and most unworkable. In fact, the difficulties with formulating a monetary threshold illuminate why setting one is the Legislature's purview, not the courts'. To set such a threshold, significant questions would have to be grappled with. For instance, a court would have to determine how to account for the indigent who do not identify themselves as such but who nonetheless fail to pay. A court would have to determine whether facilities that provide vital health care should be treated more leniently than some other type of charity because of the nature of its work, or even if a health care provider in an underserved area, such as petitioner, is more deserving of exemption than one serving an area of lesser need. A court would need to consider whether to premise the exemption on whether the institution had a surplus and whether providing below-cost care constitutes charity. Clearly, courts are unequipped to handle these and many other unanswered questions. Simply put, these are matters for the Legislature. We conclude that the definition set forth in Retirement Homes, supra at 348-349, 330 N.W.2d 682, sufficiently encapsulates, without adding language to the statute, what a claimant must show to be granted a tax exemption as a charitable institution: [Charity]    [is] a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. [ Id., quoting Jackson v. Phillips, 96 Mass (14 Allen) 539 (1867) (emphasis deleted; alterations in original).] In light of this definition, certain factors come into play when determining whether an institution is a charitable institution under MCL 211.7 o and MCL 211.9(a). Among them are the following:

(3) A charitable institution does not offer its charity on a discriminatory basis by choosing who, among the group it purports to serve, deserves the services. Rather, a charitable institution serves any person who needs the particular type of charity being offered. (4) A charitable institution brings people's minds or hearts under the influence of education or religion; relieves people's bodies from disease, suffering, or constraint; assists people to establish themselves for life; erects or maintains public buildings or works; or otherwise lessens the burdens of government. (5) A charitable institution can charge for its services as long as the charges are not more than what is needed for its successful maintenance. (6) A charitable institution need not meet any monetary threshold of charity to merit the charitable institution exemption; rather, if the overall nature of the institution is charitable, it is a charitable institution regardless of how much money it devotes to charitable activities in a particular year. Examining petitioner under these factors, we find that it is a charitable institution. Petitioner's medical clinic is readily distinguishable from the entities that we have found nonexempt under MCL 211.7 o. Petitioner is not only organized as a charitable institution as reflected in its statement of purpose and its bylaws, but it devotes itself to charitable works on the whole. We instructed in Attorney General v. Common Council of Detroit, supra at 390, 71 N.W. 632, that an institution must be organized chiefly, if not solely for charity, and petitioner meets this test. Respondent has pointed to no other reason for petitioner's existence. Nor has respondent shown any evidence that petitioner is not actively pursuing its mission to the exclusion of any noncharitable activities. We find these omissions telling. Petitioner is also fundamentally different from the Hillside Terrace home for the aged in Michigan Baptist, supra, and the apartment complex in Retirement Homes, supra . In both of those cases, the cost of maintaining the institutions was covered by fees collected from the residents. Prospective residents whose health or financial status did not meet strict requirements were not accepted. And although the petitioner in Michigan Baptist made some small exceptions in that regard, the general rule was of an exclusionary nature, not a charitable one. Petitioner in the present case shares no similarities with those institutions. Petitioner has a charity care program that offers free and reduced-cost medical care to the indigent with no restrictions. It operates under an open-access policy under which it accepts any patient who walks through its doors, [9] with preferential treatment given to no one. Although petitioner sustains notable financial losses by not restricting the number of Medicare and Medicaid patients it accepts, it bears those losses rather than restricting its treatment of patients who cannot afford to pay. Petitioner more closely matches the hospitals examined in R. B. Smith, supra, and Michigan Sanitarium, supra, hospitals we found qualified for the charitable institution exemption. Just as in those cases, the overall nature of petitioner's organization is charitable. The losses the institution sustains are not fully subsidized by the patients, but by petitioner's parent corporations, patients who can afford to pay, and, to some extent, by government reimbursements. And the fact that petitioner receives government reimbursements has little bearing on the analysis because, despite any government aid, the beneficiary of the medical care receives a gift. See, e.g., Huron Residential Services v. Pittsfield Charter Twp., 152 Mich.App. 54, 393 N.W.2d 568 (1986) (holding that a petitioner who received approximately 99 percent of its revenues from state funding was a charitable institution because the residents did not pay full value for the services rendered and, thus, received a charitable gift from the petitioner). See also Retirement Homes, supra at 350 n. 15, 330 N.W.2d 682 ([A] nonprofit corporation will not be disqualified for a charitable exemption because it charges those who can afford to pay for its services as long as the charges approximate the cost of the services.). Moreover, it is clear in this case that the reimbursements petitioner receives from government funding fall well short of defraying the costs petitioner incurs to render medical care. Thus, not only are Medicare and Medicaid patients receiving a gift from petitioner, but petitioner is not fully recouping its costs from the government because of the government's underpayments. Respondent argues that petitioner's goal of profitability negates its claim that it is a charitable institution. We find that argument hollow. Petitioner's bylaws do not allow any individual to profit monetarily from the petitioner's clinic; thus, profitability has a different meaning for this institution than it would for an entity whose goal it was to reward its agents or shareholders with profits. And the idea that an institution cannot be a charitable one unless its losses exceed its income places an extraordinaryand ultimately detrimentalburden on charities to continually lose money to benefit from tax exemption. A charitable institution can have a net gainit is what the institution does with the gain that is relevant. See R. B. Smith Mem. Hosp., supra at 36, 41, 291 N.W. 213 (1940). When the gain is invested back into the institution to maintain its viability, this serves as evidence, not negation, of the institution's charitable nature. Nor can credence be given to respondent's argument that petitioner is not charitable because it is not open 24 hours a day or because it includes noncompetition clauses in its physicians' contracts. Taken alone, these are merely neutral facts, and whether they gain or lose relevance depends on their importance when considered as part of the broader picture. In the totality of petitioner's circumstances, we do not find them particularly meaningful. First, just as there is no monetary threshold by which we can gauge an institution's charity, there is certainly no rule requiring a charity to never sleep. Petitioner holds regular business hours, and during those hours, it accepts any patient who needs medical care. And with respect to the noncompetition clauses, petitioner explained that it is very difficult to attract physicians to the region, so these clauses are included to encourage physicians to remain with the charity and assist petitioner with carrying out its charitable work. Moreover, petitioner's agent testified that petitioner has never enforced one of its noncompete clauses. Thus, these facts do nothing to reduce petitioner's charitable status. Respondent also unconvincingly argues that petitioner does not lessen the burden of government, see Retirement Homes, supra at 349, 330 N.W.2d 682, because it enlists eligible patients in government-subsidized programs. While lessening the burden of government is a component of the definition of charity found in Retirement Homes, supra, respondent takes it out of context. This Court stated that a charitable institution is one that benefits an indefinite number of persons `either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.' Id. (emphasis added; citation omitted). Implicit in the definition is that relieving bodies from disease or suffering is lessening the burden of government. In other words, petitioner does not have to prove that its actions lessen the burden of government. Rather, it has to prove, as it did, that it reliev[es] their bodies from disease, suffering or constraint, which is, by its nature, a lessening of the burden of government. In any event, even though petitioner helps to enroll patients in Medicare and Medicaid, it still subsidizes the cost of care in light of the government's underpayment, thus lessening the government's burden of covering the full cost of a person's care. Finally, we reject the reliance of the lower tribunals and respondent on ProMed, supra . The Court of Appeals holding in that case was directly tied to its finding that the petitioner had presented no documentation of the level of charitable service it provided. The Court of Appeals was correct to hold that when an institution presents no evidence of its charitable works, then, as a matter of law, it cannot be found to be a charitable institution. But it does not follow that an institution must present evidence of a particular level of charitable care because there is no such threshold level contained in the statute. And we refuse to create one. Accordingly, ProMed must not be interpreted as requiring quantitative proof of the value of charitable care. Rather, the focus should be on the overall nature of the institution as judged by the particular facts presented in each individual case. [10] In sum, the Tax Tribunal and Court of Appeals erred by denying petitioner's request for tax exemption as a charitable institution. Petitioner satisfies the concepts we have previously set forth with respect to what a claimant must show to be found charitable. See Retirement Homes, supra at 348-349, 330 N.W.2d 682. Petitioner provides a giftfree or below-cost health careto an indefinite number of people by relieving them of disease or suffering. As such, while we will generally defer to the Tax Tribunal's interpretation of a statute that it is delegated to administer, Maxitrol Co. v. Dep't of Treasury, 217 Mich.App. 366, 370, 551 N.W.2d 471 (1996), we decline to do so in this case because we find that the tribunal misinterpreted the law. The statute says nothing about how much charity an institution should provide. Despite that, the tribunal erroneously engrafted a nonexistent threshold of charitable activity. Had the Legislature wanted such a threshold, it could have easily included one. Therefore, we find that petitioner is a charitable institution entitled to the corresponding tax exemption.