Court Opinion

ID: 9659570
Source: CourtListenerOpinion
Date Created: 2023-08-23 21:49:34.105484+00
Date Added: 2024-06-11T18:14:09.452856
License: Public Domain

Ray Thornton, Justice, dissenting. In return for providing charitable care to the public, nonprofit hospitals historically have been afforded tax exemptions on their buildings and lands. Crittenden Hospital is no exception, having provided millions of dollars of charity care over the years to Crittenden County residents. It is not only the physical plant and the lands that allow the Hospital to provide charity care, but also it is the physicians who examine and treat those citizens in the hospital, and who provide after care to those same citizens in their office building following discharge from the Hospital. Without physician staff at the Hospital, the Hospital could not provide charity care. Without physician aftercare, medical services to the poor would be poor indeed. It is for this reason, and the reasons set forth below, that I respectfully dissent from the decision by the majority. In affirming the trial court’s ruling, the majority relies on the extraordinary standard of proof required to sustain a tax exemption. The majority then exercises its review of the trial court’s decision and determines that the trial court’s finding that the Association failed to prove beyond a reasonable doubt that the buñding and parking lot were used exclusively for public purposes was not clearly erroneous. While I agree that the decision of the trial court should be accorded deference, this case presents an issue involving the interpretation of our constitution, and it is our responsibility to decide the legal issues and to develop a coherent principle of law for application in future cases. Under Article 16, section 5, of the Arkansas Constitution, all real and tangible personal property are taxable, except those enumerated in subsection (b), which excludes from taxation “public property used exclusively for public purposes; . . . and buildings and grounds . . . used exclusively for public charity.” The statutes add that all buildings, and lands on which these buildings sit, are exempt from taxation so long as they are “not leased or otherwise used with a view to profit.” Ark. Code Ann. § 26-3-301(7) (Supp. 1995). The constitution does not define every instance of “exclusive public use and purpose.” In fight of that, we have adhered to the notion that “public policy is declared by the General Assembly; not by courts,” when considering issues of tax exemption. Kerr v. East Cent. Arkansas Regional Hous. Auth., 208 Ark. 625, 630, 187 S.W.2d 189, 192 (1945). In this case, the improvements to the hospital complex were financed pursuant to Act 175 of 1961, which authorizes counties to build health-care facilities for the public benefit and provides the procedure for issuance of bonds to accomplish that public purpose. In Act 175, the legislature spoke: improvement of health care is of vital importance to the public; and as such, the construction of needed health-care facilities is a necessary and essential public purpose and function of county governments. See preamble to Health Care Facilities Act, codified at §§ 14-265-101 to - 112. Our decisions over many years have construed “exclusive public use and purpose” in the terms of “necessary and essential public purpose and function.” When reading these cases together, a coherent principle of law emerges: A facility of a tax-exempt organization does not lose its exclusive public purpose when a private person exacts a benefit as long as the facility remains essential and necessary to the organization’s primary public or charitable purpose. In one of the earliest cases, we determined that school property held for investment was not exempt from taxation, and said: “It is necessary that a school district shall have a school building and grounds .... But it is not essential that a school district should hold land for the purpose of sale or rent, and as an investment for profit.” School Dist. of Fort Smith v. Howe, 62 Ark. 481, 487, 37 S.W. 717, 718 (1896). We expanded on this analysis in Hilger v. Harding College, 231 Ark. 686, 331 S.W.2d 851 (1960). In that case, we determined that the operation of a printing plant, a laundry, and a dairy, at least partially for profit, caused the college to lose its tax-exempt status for those operations because they were not necessary to the educational purposes of the institution. We noted, however, that a different result might be reached if the college offered courses of instruction requiring those operations. We said: “If and when [animal husbandry and dairying courses are offered,] a different situation will be presented relative to the exemption from taxation of such equipment and lands as are necessary to implement such course or courses . . . .” Hilger, 231 Ark. at 695, 331 S.W.2d at 856. While we have recently held that the operations by private businesses of aircraft modification and service shops, car rental agencies, and other for-profit enterprises justified the removal of tax-exempt status, the thoughtful dissent by Justice Glaze joined in by two other justices reminds us of the well-established principles that clearly apply to the facts before us. City of Little Rock v. McIntosh, 319 Ark. 423, 892 S.W.2d 462 (1995). The dissent pointed out that the majority opinion “ignores the well-settled rule that, where the primary and principal use to which the property is put is public, the mere fact that income is incidentally derived from its use does not affect its character as property devoted to public use.” Id. at 432, 892 S.W.2d at 468. Equally important, the dissent recognized the “essential” character of the aircraft modification and service shops to the operation of the airports. Id. at 433, 892 S.W.2d at 468. In the case before us, the primary purpose of the improvements was, and is, to attract new physicians to the area to deliver needed medical care to the County’s citizens. Without physicians, the hospital cannot provide that charity care. These physicians need office space, and they need a place to park their cars. Here, the Hospital’s office building and parking lot remain essential and necessary to the Hospital’s primary public and charitable purpose because they afford space for an important Hospital resource, the physician staff, to practice its trade. Further, it should not matter that these physicians also treat patients who are able to pay their bills, just as it does not matter that tax-exempt hospitals may treat patients who pay their bills. See Burgess v. Four States Memorial Hosp., 250 Ark. 485, 465 S.W.2d 693 (1971). Like the charity hospital, a physician who provides charity care must also treat non-charity patients to survive. Moreover, it would defy logic to preserve a tax exemption when physicians deliver this medical care from office space located in the Hospital, but to deny this exemption when these physicians provide this care in an adjacent budding, connected by a walkway. The majority points out that the trial court based its decision, in part, on the fact that the office building is in competition with other tax-paying medical facilities in the county. I find no merit in this argument. While appellees state that at least fifty percent of the physicians in the area are housed in buildings in competition with the Hospital’s office building, appellees do not tell us how many of those physicians provide charity care at the Hospital, or whether those physicians were recruited to the area by the Hospital to deliver needed care to the County’s citizens. I believe the trial court erred in interpreting the law, and clearly reached the wrong conclusion on the evidence presented in this case. I would also reverse the court under principles that we established in another context, the use of municipal bonds and tax exemptions to attract industry to our state. In Wayland v. Snapp, 232 Ark. 57, 334 S.W.2d 633 (1960), we held that the profits made by a private manufacturing plant constructed on public lands using tax-exempt bonds did not invalidate the public policy of providing employment opportunities, and therefore met the constitutional exemption from ad valorem taxes. The appellants in that case challenged the manufacturing plant’s tax exemption as “contrary to Article 16, sections 5 and 6 of the Arkansas Constitution.” Id. at 61, 334 S.W.2d at 636. In disposing of this argument, we held: As we understand the above provisions of the Constitution, for property to be exempted from taxation two elements must be present: (a) the subject property must be “public property”, that is, it must be owned [in this instance] by the City of Batesville; (b) it must be used exclusively for public purposes. In our opinion both of these elements are present .... Any benefit [the manufacturer] may receive from this entire undertaking will be entirely incidental it seems to us. Id. at 72, 334 S.W.2d at 641. Wayland tells us that the exclusive public use that justifies the tax exemption is determined by the public benefit of the entire project, not just the subtenant’s use. Here, as in Wayland, the exclusive public use is to provide needed medical care to the citizens of Crittenden County. These citizens would suffer an important detrimental loss without this tax-exempt undertaking. For sixteen years, Crittenden County honored its agreement not to seek or impose ad valorem taxes on the improved property, the use and purpose of which has not changed. We need not rely, however, on principles addressing the question of estoppel in concluding that the actions of the Tax Assessor should be reversed on the basis of the reasons stated in this dissent. Corbin, J. joins.