Opinion
No. 29976
Decided November 22, 1944.
Taxation — Nonprofit hospital service corporation — Section 669 et seq., General Code — Lands and improvements not exempt — Section 2, Article XII, Constitution.
Land and improvements thereon belonging to a corporation organized pursuant to Section 669 et seq., General Code, may not be exempted from taxation. (Section 2 of Article XII of the Constitution of Ohio.)
APPEAL from the Board of Tax Appeals.
Appellant, The Hospital Service Association of Toledo, operates under what is known as the Blue Cross Plan, organized and operating pursuant to Section 669 et seq., General Code. While appellant's articles of incorporation were not introduced in evidence, the Board of Tax Appeals assumed that appellant had complied with all the requirements of Section 669-1 to Section 669-13, General Code.
The record discloses that appellant acts as agent for thirteen charitable hospitals located in northwestern Ohio, "selling the service of these hospitals on a contract basis." Appellant has entered into a contract with such hospitals under what is termed "Toledo Inter-Hospital Agency Contract" the preamble to which contract reads in part:
"Whereas, the participating hospitals desire to unite in a program for rendering hospital service at a fixed annual rate."
The term "hospital service" is defined in the contract to mean "receiving a subscriber into a participating hospital (upon the recommendation of a physician or surgeon * * *) and furnishing to such subscriber, as needed," certain hospital service. The term "subscriber" is defined to mean "any person to whom the service association shall issue a service contract."
Under the aforesaid contract the participating hospitals appointed the appellant to be the exclusive agent to provide subscribers, to collect monthly fees and to distribute among the participating hospitals the funds collected. Such hospitals agree to furnish hospital service to any subscriber under the conditions of the contract.
Appellant is authorized to enter into contracts for hospital service with any five or more persons, residents of northwestern Ohio and regularly employed by the same employer, and may be authorized to contract with others with the approval of two-thirds or more of the participating hospitals. The charge for a subscriber varies from $7.20 to $20 per year.
The service contract is nontransferable and subject to forfeiture if a subscriber fails to make any payment within thirty days after the same becomes due and payable.
The agency contract provides that if at the end of any calendar year appellant shall hold more than sufficient funds to pay all outstanding claims, costs and expenses and required reserve, the surplus remaining shall be held and distributed for the benefit of the subscribers. The contract also provides that upon termination thereof and after all service contracts have expired any funds (or deficit) remaining shall be apportioned and distributed among the hospitals.
Section 669-5, General Code, requires an unearned premium reserve to be maintained by such corporation. Section 669-8, General Code, requires its investments to be made according to the laws applicable to life insurance companies.
In May, 1941, appellant purchased certain real property known as part of lot No. 1050 in the Vistula Addition of the city of Toledo, Lucas county, Ohio, which at the time stood upon the tax duplicate of Lucas county at a valuation of $23,870. Thereafter appellant made application to the Board of Tax Appeals for consent to the exemption of such real property from taxation for the year 1942. In the application it was stated in respect of the building on such premises: "Lower floor occupied by Hospital Service Association, a nonprofit corporation. Part of upper floor (15' x 70') occupied by Central Investigating Bureau, Inc., of Toledo, a nonprofit Ohio corporation deriving its funds exclusively from the Toledo Community Chest." Exemption was claimed under Section 669-13 and Section 5353, General Code.
Appellant's statement of income and expense, January 1, 1941, to January 1, 1942, showed:
Earned income from subscribers $583,013.80 Other income — miscellaneous 7,292.27 ----------- $590,306.07
Deduct:
Administrative expense $ 51,398.51 Hospital care 455,064.86 ----------- 506,463.37 ---------- Excess of earned income over expense $ 83,842.70
The Board of Tax Appeals denied its consent to such exemption, whereupon appellant perfected an appeal to this court, under Section 5611-2, General Code.
Messrs. Williams, Eversman Morgan, Mr. Charles W. Racine and Mr. John F. Jones, for appellant.
Mr. Thomas J. Herbert, attorney general, Mr. Daronne R. Tate and Mr. Joel S. Rhinefort, prosecuting attorney, for appellees.
Whether the decision of the Board of Tax Appeals is unreasonable or unlawful, as claimed by appellant, depends upon a proper understanding of Section 2, Article XII of the Ohio Constitution and Sections 669-13 and 5353 of the General Code of Ohio.
This court is firmly committed to the following propositions:
A. The land and improvements thereon of an institution may be exempted from taxation only if they are being used exclusively for a charitable purpose. Ursuline Academy of Cleveland v. Board of Tax Appeals, 141 Ohio St. 563, 49 N.E.2d 674; Incorporated Trustees of Gospel Worker Society v. Evatt, Tax Commr., 140 Ohio St. 185, 42 N.E.2d 900; Columbus Metropolitan Housing Authority v. Thatcher, Aud., 140 Ohio St. 38, 42 N.E.2d 437.
B. A right to exemption from taxation must appear with reasonable certainty in the language of the Constitution or valid statute and must not depend upon a doubtful construction of such language. In re Estate of Taylor, 139 Ohio St. 417, 40 N.E.2d 936; In re Complaint of Taxpayers, 138 Ohio St. 287, 34 N.E.2d 748; Cullitan, Pros. Attorney, v. Cunningham Sanitarium, 134 Ohio St. 99, 16 N.E.2d 205; Lee, Treas., v. Sturges, 46 Ohio St. 153, 19 N.E. 560, 2 L.R.A., 556.
C. A statute exempting property from taxation is to be read in the light of the Constitution of Ohio and this court will not assume that the General Assembly intended to exceed any constitutional limitation. Columbus Metropolitan Housing Authority, v. Thatcher, Aud., supra; State, ex rel. Struble, v. Davis et al., Tax Commission, 132 Ohio St. 555, 559, 9 N.E.2d 684.
Section 669-13, General Code, provides:
"Every corporation subject to the provisions of this act is hereby declared to be a charitable and benevolent institution, and its funds and property shall be exempt from taxation."
Bearing in mind the rule of strict construction of statutes authorizing exemption from taxation and the duty of the court to sustain legislation where possible, the court must limit the word property" in the foregoing statute to personal property and as not including "land and improvements thereon." Section 2, Article XII of the Constitution of Ohio.
We are not called upon in this case to pass upon the question of whether under the statute personal property may be exempted or classified. In the case of Seward, Dir. of Pub. Service, v. State, ex rel. Kratt, 129 Ohio St. 296, 195 N.E. 241, this court held (page 298): "Where two courses are open and one interpretation upholds the law as constitutional and the other defeats it, the courts must adopt the one that preserves the law's validity."
As stated by Judge Matthias in the case of State, ex rel. Struble, v. Davis et al., Tax Commission, supra, 559:
"This court has uniformly adopted and applied the rule of strict construction to the exemption provisions of Section 2, Article XII. As stated in 2 Cooley on Taxation (4. Ed.), 1382, Section 661: '* * * and generally, where the Constitution enumerates the property which is or may be exempted, it is held that the Legislature has no power to exempt other property than that enumerated. The lack of power to exempt may result from the express wording of the constitutional provision or be implied on the theory that the enumeration is intended to be exclusive.' "
We are of the opinon that Section 669-13, General Code, does not authorize the exemption of land and improvements thereon from taxation.
Therefore, appellant's reliance must be limited to Section 5353, General Code. This section provides for the exemption of "property belonging to institutions used exclusively for charitable purposes." (Italics ours.)
In the case of Wehrle Foundation v. Evatt, Tax Commr., 141 Ohio St. 467, 49 N.E.2d 52, we held that the word "property" in Section 5353, General Code, was broad enough to cover both real and personal property provided such property is used exclusively for charitable purposes. It remains, therefore, to determine whether appellant's property belongs "to an institution used exclusively for charitable purposes."
In the case of Cleveland Hospital Service Assn. v. Ebright, Treas., 142 Ohio St. 51, 49 N.E.2d 929, this court held:
"A corporation organized under the provisions of Sections 669 to 669-13, inclusive, General Code, for the purpose of establishing, maintaining and operating a nonprofit hospital service plan whereby hospital care may be provided by a nonprofit hospital or a group of such hospitals, is engaged in a business substantially amounting to insurance."
We are unable to find any evidence in the record of the instant case which would justify a holding that appellant is an institution whose property is used exclusively for charitable purposes. Appellant's activities are limited exclusively to the securing of pay patients and not charity patients for the various hospitals. Indeed, the many persons covered by such insurance, as well as the organizations employing such insured, would doubtless resent the imputation that they or any of them are objects of charity. The very purpose of the insurance is to guard against the insured becoming an object of charity. Each participating hospital is to receive six dollars ($6) for each day, or part thereof, of hospital service rendered to subscribers holding contracts for semi-private room service and at the rate of four dollars and fifty cents ($4.50) for each day, or part thereof, of hospital service rendered to subscribers holding contracts for service in a ward. More expensive hospital service may be obtained at regular hospital rates for such service with credit to subscriber for the semi-private ward allowance.
In concluding its finding, the Board of Tax Appeals, in its journal entry, recites:
"The board finds that the applicant is engaged in the insurance business for the advantage and convenience, if not profit, of the participating hospitals and the subscribers to said contracts. It is not engaged in dispensing charity to anyone or furnishing any service or carrying on any of the purposes for which the applicant was organized for those who are in need thereof without payment. Its property and funds are not used exclusively, or even in part, for charitable purposes.
"It is therefore the order of the Board of Tax Appeals that this application be, and the same hereby is, denied."
Upon hearing and consideration of the record and evidence in the instant case this court is of the opinion that the decision of the Board of Tax Appeals appealed from is reasonable and lawful and, therefore, such decision should be and hereby is affirmed.
Decision affirmed.
WEYGANDT, C.J., MATTHIAS, ZIMMERMAN, BELL and WILLIAMS, JJ., concur.
HART, J., dissents.