Opinion
Nos. 41353, 41354, 41355.
Filed April 12, 1978.
1. Property: Taxation. Property owned and used exclusively for religious, educational, or charitable purposes is exempt from taxation when such property is not owned or used for financial gain or profit to either the owner or user. 2. Property: Taxation: Words and Phrases. The primary or dominant use, and not an incidental use, is controlling in determining whether property is exempt from taxation. 3. Taxation: Words and Phrases. The concept of charity is broad enough to include practical enterprises for the good of humanity operated at a modest cost to those who receive benefits. 4. Corporations: Taxation: Statutes. A nursing home owned and operated by a nonprofit corporation is exempt from taxation under section 77-202, R.R.S. 1943, when it is not owned or used for financial gain or profit to either the owner or user.
Appeals from the District Court for Saunders County: HOWARD V. KANOUFF, Judge. Affirmed.
William D. Sutter and Loren Lindahl, for appellant.
Stephen T. McGill, Ronald R. Volkmer, and Eugene T. Hackler, for appellee.
Moore, Moore Peters, for amicus curiae Ashland-Greenwood School Dist.
Burke, Doerr, Erickson, Green, Grodinsky, Heaney, Hotz, McEachen, Rhodes, Sederstrom, Seidler, for amicus curiae Eleven Omaha Attorneys.
Heard before WHITE, C. J., SPENCER, BOSLAUGH, McCOWN, BRODKEY, and WHITE, JJ., and KUNS, Retired District Judge.
The issue presented in this appeal is whether a nursing home located in Saunders County, and owned and operated by the Bethesda Foundation, was entitled to tax exempt status in 1972, 1974, and 1975 on the ground that it was owned and used exclusively for charitable purposes. The board of equalization of Saunders County denied Bethesda's application for tax exemption as a charitable organization in each of those years. Bethesda appealed to the District Court, which found that the property in question was owned and used exclusively for charitable and religious purposes, and that it was not owned or used for financial gain or profit to either the owner or the user. The District Court concluded that the board of equalization had erred in denying tax exemption to the nursing home. The County of Saunders has appealed to this court, contending that the District Court erred in concluding that the nursing home was exempt from taxation. We affirm.
The Bethesda Foundation is a Nebraska nonprofit corporation organized exclusively for charitable and religious purposes, and its specific purpose is to own and operate nonprofit homes for the physical, psychological, and spiritual care of elderly persons. Bethesda's articles of incorporation provide that no part of the earnings of Bethesda shall inure to the benefit of the directors, officers, or other private persons, except for reasonable compensation or fees for services rendered. The articles of incorporation also provide that upon dissolution of the corporation its assets shall be disposed of exclusively for the purposes of the corporation, or to organizations organized and operated exclusively for charitable, educational, religious, or scientific purposes so as to qualify for tax exemption under the Internal Revenue Code.
Bethesda operates more than 20 nursing homes in 7 states. Accounting, payment of salaries to employees, and general administrative tasks for all the nursing homes are performed at a central office in Millard, Nebraska. If revenue at a particular nursing home exceeds expenses, the net gain is used elsewhere in the Foundation to offset net losses of homes where expenses exceed revenue. Bethesda maintains one consolidated annual balance sheet for all its operations, and, as an entity, its expenses have exceeded its revenue in past years. In 1975, for example, Bethesda had losses of more than $1,000,000, and projected losses in 1976 were $400,000. To offset these losses, Bethesda has sought contributions from the public.
In 1971, Bethesda acquired the Ash Manor Nursing Home in Ashland, Nebraska. Bethesda replaced an antiquated structure with a new building, and Ash Manor is now a modern, 91-bed facility. It is licensed by the Department of Health of the State of Nebraska as an Intermediate Care Facility I. The admission policy of the home is nondiscriminatory, and the only requirement for admission is certification by a physician that the patient is in need of nursing care. Ash Manor accepts applicants on a "first come, first serve" basis, and ability to pay is not a consideration for admission.
Every person living at Ash Manor requires nursing care, which is provided by 2 registered nurses, 4 licensed practical nurses, 23 nurse aides, and 2 physical therapists. Much of the care administered to patients at Ash Manor is analogous to hospital care, and many of the patients would require hospitalization if they were not in Ash Manor. Many of the patients are not ambulatory, and many must be handfed.
Patients who are able to pay are charged $15, $16.25, or $17.50 per day, depending on the degree of care they require. At the time of trial, Ash Manor had 35 private pay patients. The other 56 patients received Medicaid benefits in the amount of $12.71 per day, but this Medicaid reimbursement does not cover the cost of caring for Medicaid patients. No patient has ever been removed from the home for refusal or inability to pay, and no law suit has ever been commenced to collect payment from a patient.
Accounting statements indicate that Ash Manor's expenses exceeded revenue by approximately $3,700 in 1975. Two statements for 1973 and 1974 indicate that revenue exceeded expenses by about $44,000 and $28,000 in those years, but those figures do not reflect a ratable share of general office overhead or interest on general obligation debts allocable to Ash Manor, as did the 1975 figures. Bethesda's chief executive officer testified that if the latter two considerations were taken into account, there would have been little, if any, net income at Ash Manor in 1973 and 1974. Any excess revenue which did exist would be used to cover losses at other Bethesda nursing homes. Employees at Ash Manor are compensated at rates comparable to those paid in similar institutions. The administrator, for example, receives $900 per month.
The evidence at trial also showed that religion plays an important role at Ash Manor. An interdenominational religious service is held every week, and there are daily Bible study sessions. The staff provides transportation for those patients who wish to attend a local church. Pastors from local churches agreed that there was a religious atmosphere at Ash Manor.
Property owned and used exclusively for religious, educational, or charitable purposes is exempt from taxation when such property is not owned or used for financial gain or profit to either the owner or user. Art. VIII, 2, Constitution of Nebraska; 77-202, R. R. S. 1943. It is the primary or dominant use, and not an incidental use, of the property which is controlling in determining whether property is exempt from taxation under section 77-202, R.R.S. 1943. Lincoln Woman's Club v. City of Lincoln, 178 Neb. 357, 133 N.W.2d 455 (1965). If the property in question is used for no other purposes than those which are educational, religious, and charitable, the conditions of exemption have been complied with, irrespective of the proportion which any one of these distinctive purposes may bear to the others. Lincoln Woman's Club v. City of Lincoln, supra; Ancient Accepted Scottish Rite v. Board of County Commissioners, 122 Neb. 586, 241 N.W. 93 (1932). The question presented in the present case is whether primary or dominant use of Ash Manor was for religious and charitable purposes in the tax years in question.
In Evangelical Lutheran Good Samaritan Soc. v. County of Gage, 181 Neb. 831, 151 N.W.2d 446 (1967), this court determined that a nursing home was entitled to tax exemption in a case with facts similar to those in the present case. In Good Samaritan the owner of the nursing home was a nonprofit corporation organized for purposes similar to those for which Bethesda was organized, and which operated a number of institutions in several states. The nursing homes in Good Samaritan provided nursing care to patients similar to that provided by Ash Manor, and the requirements of the patients in both cases are analogous. The nursing home in Good Samaritan, like Ash Manor, had both private pay and welfare patients, and sometimes revenue exceeded expenses. Surplus revenue at one home would be used to offset losses at another home.
In Good Samaritan this court concluded that the nursing homes were charitable institutions, noting that the concept of charity was broad enough to include practical enterprises for the good of humanity operated at a moderate cost to those who receive benefits. We found that nursing homes are analogous to hospitals which are universally classed as charitable institutions. The rule adopted by this court in Good Samaritan is one followed in other jurisdictions. See, City of McAllen v. Evangelical Lutheran Good Samaritan Soc., 530 S.W.2d 806 (Tex., 1975); Annotation, Nursing Homes as Exempt from Property Taxation, 45 A.L.R. 3d 610.
Appellant attempts to distinguish this case from Good Samaritan on the grounds that Bethesda has been involved with profit-making ventures and has used revenue from its nursing homes for the financial gain or profit to officers of Bethesda. Appellant relies primarily on Bethesda's association with a construction company and with an aviation company. The construction company, Turcon, Inc., was formed by officers of Bethesda for the purpose of building nursing homes for Bethesda at cost. After constructing numerous nursing homes for Bethesda at cost, as well as occasionally performing work for other organizations, Turcon went out of business in 1972. At that time Bethesda absorbed the company's assets and debts. Although the debts absorbed were substantial, the founder of Bethesda, who was a shareholder in Turcon, made a gift to Bethesda of real estate which had a value exceeding the debts of the construction company. There is no evidence that Turcon was used by officers of Bethesda as a conduit for siphoning off funds from Bethesda. In fact, the evidence indicated that the shareholders of Turcon lost their funds used as capital when Turcon was formed.
The aviation company was formed by Bethesda as a means to minimize the cost of maintaining airplanes used by Bethesda employees for business purposes. The purpose of the company was to form a charter service to produce income when Bethesda's planes were idle, and thereby offset the cost of the planes. The company was never successful, and Bethesda was terminating its operations at the time of trial. There is no evidence that the aviation company was used as a conduit for placing Bethesda funds in the hands of private parties.
We do not believe that Bethesda's association with the two companies distinguishes this case from Good Samaritan. The issue in this regard is whether the Ash Manor property is being owned and used for financial gain or profit to either the owner or user. The association with the companies was for the purpose of minimizing Bethesda's costs, and did not in fact result in financial gain or profit to either Bethesda or the officers of Bethesda.
Appellant also argues that the chief executive officer of Bethesda, Reverend Charles Turner, has obtained unwarranted personal benefits from Bethesda. Appellant relies on such incidents as Turcon having built a house for Turner at cost in 1968, Bethesda paying the cost of renting an auditorium where Turner gave a speech, and Bethesda loaning money to Turner's former church. None of these is compelling in view of the fact that there is no evidence that Turner himself received financial gain or profit from Bethesda. It should be noted that Turner has contributed land, money, and services to Bethesda since it was founded. At no time has he received compensation at a rate higher than that received by officers in comparable institutions, and in many years he has received little or no compensation.
We conclude that the Good Samaritan case is controlling. Under the reasoning of that case, we conclude that the Ash Manor property is owned and used exclusively for charitable purposes within the meaning of section 77-202, R.R.S. 1943. The record does not support the view that the property is owned or used for financial gain or profit to either the owner or user. Therefore the judgment of the District Court is affirmed.
AFFIRMED.