Opinion ID: 2221626
Heading Depth: 1
Heading Rank: 5

Heading: Applicable Legal Principles for Determining Whether Use of Property is Charitable.

Text: This court has referred to the requirement that the property be used solely for the appropriate objects of the charitable institution as the actual use test. See St. Ambrose Univ. v. Board of Review, 503 N.W.2d 406, 407 (Iowa 1993). Consistent with this characterization, in cases involving partial tax exemption, our courts have examined the extent to which the property was actually used for the charitable purpose. See Aerie 1287, 226 N.W.2d at 25; Mayflower Homes, Inc. v. Wapello County Bd. of Review, 472 N.W.2d 632, 633-34 (Iowa App.1991). Before we can undertake such an analysis, however, we must identify the nature and scope of the charitable purpose or use at issue. See South Iowa Methodist Homes, Inc. v. Board of Review, 173 N.W.2d 526, 531 (Iowa 1970) (noting that the first step is to determine what objects are charitable). This preliminary step is of particular importance here, because in the Board's view only child care provided to low-income families qualifies as a charitable endeavor. We turn to our prior cases for guidance on this matter. A review of our prior cases demonstrates that this state is committed to a broad definition of charity. See Care Initiatives, 500 N.W.2d at 17 (We give the term `charitable' in the tax exemption statute a broad definition.); Richards v. Iowa Dep't of Revenue, 414 N.W.2d 344, 351 (Iowa 1987) (Iowa law has long embraced the broad view of charity.). As we noted in Richards, charity is not limited to providing assistance to the needy. 414 N.W.2d at 351; accord South Iowa Methodist Homes, 173 N.W.2d at 531 (noting that the recipients of charity need not be limited to the financially destitute to qualify for a charitable exemption). It encompasses all humanitarian activities. Richards, 414 N.W.2d at 351 (quoting Elizabeth T. Tsai, Annotation, Receipt of Pay From Beneficiaries as Affecting Tax Exemption of Charitable Institutions, 37 A.L.R.3d 1191, 1197 (1971)). Such activities include `the gratuitous or partly gratuitous improvement of spiritual, mental, social and physical conditions of young people,' as well as of the elderly. Id. (quoting Andrews v. Young Men's Christian Ass'n, 226 Iowa 374, 383, 284 N.W. 186, 192 (1939)). In the past our court has considered two requested exemptions for child care facilities. See Camp Foster YMCA v. Dickinson County Bd. of Review, 503 N.W.2d 409, 410 (Iowa 1993); St. Ambrose Univ., 503 N.W.2d at 406. These cases are not particularly helpful, however, because the child care centers under consideration were operated by entities who qualified as exempt institutions independent of their child care activities. See Camp Foster, 503 N.W.2d at 411 (facility was operated by the local YMCA to provide day care for children in the community); St. Ambrose Univ., 503 N.W.2d at 407 (facility was operated by St. Ambrose University primarily for children of its employees and students). Thus, the actual use test applied in those cases was less demanding. See Camp Foster, 503 N.W.2d at 411; St. Ambrose Univ., 503 N.W.2d at 407. It was not necessary for the YMCA or St. Ambrose University to establish that their child care facilities were charitable endeavors, so long as the facilities furthered the entities' charitable or educational missions. See Camp Foster, 503 N.W.2d at 411; St. Ambrose Univ., 503 N.W.2d at 407. Accordingly, in the Camp Foster case, the child care center was held exempt because it promote[d] the general mission of the YMCA through meeting a recognized need of the local community. 503 N.W.2d at 411. The child care facility in St. Ambrose University was granted exempt status because it facilitated the educational goals of the university's students and faculty. 503 N.W.2d at 408. In contrast, here, the sole charitable activity of the Center is the operation of its child care facility. Therefore, this court must determine to what extent that activity is itself charitable. Although we have no cases considering the exempt status of child care operations in this context, we can look for guidance to the numerous cases involving the care of the elderly by entities whose sole charitable endeavor was the facility at issue. See Friendship Haven, Inc. v. Webster County Bd. of Review, 542 N.W.2d 837, 838 (Iowa 1996); Care Initiatives, 500 N.W.2d at 15; Atrium Village, Inc. v. Board of Review, 417 N.W.2d 70, 71 (Iowa 1987); Richards, 414 N.W.2d at 346; Dow City Senior Citizens Hous., Inc. v. Board of Review, 230 N.W.2d 497, 498 (Iowa 1975); Evangelical Lutheran Good Samaritan Soc'y v. Board of Review, 200 N.W.2d 509, 510 (Iowa 1972); South Iowa Methodist Homes, 173 N.W.2d at 526-27; Mayflower Homes, 472 N.W.2d at 633; Friendship Ctr. West, Inc. v. Harman, 464 N.W.2d 455, 456 (Iowa App.1990); Bethesda Found. v. Board of Review, 453 N.W.2d 224, 225 (Iowa App. 1990); Twilight Acres, Inc. v. Board of Review, 346 N.W.2d 40, 41 (Iowa App. 1984); Hilltop Manor v. County Bd. of Review, 346 N.W.2d 37, 38 (Iowa App. 1984); Evangelical Lutheran Good Samaritan Soc'y v. Board of Review, 267 N.W.2d 413, 414 (Iowa App.1978). We now examine these cases for guidance in determining the extent to which providing care to persons is charitable. In reviewing our cases considering facilities for the elderly, there appear to be two requirements for the facility to qualify as a charitable endeavor. First, the facility must provide some level of care, as opposed to mere housing. Richards, 414 N.W.2d at 351 (For an institution to be charitable it should provide care in addition to housing.); see also Dow City, 230 N.W.2d at 499 (noting, in denying exempt status, that taxpayer provided housing, but no care). Second, the care must be made available on a gratuitous or partly gratuitous basis. See Richards, 414 N.W.2d at 353 (stating that a truly charitable institution will make concessions on fees to residents unable to pay them and that the ` partly gratuitous' care of certain persons is a charitable purpose). Accordingly, we have denied an exemption where the facility charged its occupants the full cost of their care and did not provide concessions on fees for those unable to pay. See, e.g., Friendship Haven, 542 N.W.2d at 840-41 (denying exemption in part because occupants of facility paid for their housing and care and so were not the recipients of charity); Care Initiatives, 500 N.W.2d at 18 (rejecting taxpayer's argument that it provided gratuitous care to Title XIX residents where evidence showed that Title XIX reimbursement rate exceeded the facility's average cost per patient day); Atrium Village, 417 N.W.2d at 71, 73 (denying exemption where monthly charges to residents were set at a level to recoup taxpayer's expenses and facility did not admit or retain those persons who were unable to pay); Dow City, 230 N.W.2d at 499 (refusing exemption where charges were set at a level to make facility self-sufficient and no rent concessions were made to residents based on need). On the other hand, where charitable contributions defray the residents' expenses, or fees are waived for needy residents, a charitable exemption has been granted. See, e.g., Richards, 414 N.W.2d at 353 (upholding exempt status where contributions of money, goods and services supported the establishment of the facility and helped to cover its ongoing operating expenses, and facility had admitted persons who could not pay in full); South Iowa Methodist Homes, 173 N.W.2d at 532-33 (granting exemption where room costs exceeded charges and some residents' fees were subsidized by the taxpayer); Bethesda Found., 453 N.W.2d at 228 (holding the requirement that care be gratuitous or partly gratuitous was met where admission was nondiscriminatory and Title XIX payments did not cover the daily cost of covered residents); Hilltop Manor, 346 N.W.2d at 39 (holding that home for the elderly was exempt where fees covered only operating costsfacility had been built with donationsand recreational and religious activities were provided gratuitously by a volunteer auxiliary organization). From these cases, we conclude that charitygratuitous or partly gratuitous carecan be provided in two different ways. One manner of providing gratuitous or partly gratuitous care is to subsidize the care of those who are unable to pay. Another route of meeting the gratuitous-or-partly-gratuitous requirement is to use charitable contributions to cover the costs of establishing the facility and some portion of the ongoing operating expenses, thereby subsidizing the cost of the facility for all persons who use it, regardless of their ability to pay. We turn now to the facts of this case to determine whether the Center subsidized the costs of child care for those clients who could not otherwise afford to pay for the services, or whether charitable contributions helped to defray the costs of the building and the continuing operation of the day care, resulting in a below-expenses charge for those using the facility.