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Board of Sup'rs v. Benevolent Ass'n

Supreme Court of Mississippi, Division A
Nov 22, 1937
177 So. 27 (Miss. 1937)

Opinion

No. 32975.

November 22, 1937.

1. TAXATION.

Under statute exempting from taxation all property belonging to religious, charitable, or benevolent organizations used for hospital purposes, and which hospital maintains one or more charity wards, and where all income is used entirely for hospital purposes, a hospital claiming exemption may be operated for profit in that its income may exceed its expenses, provided all of income is devoted to hospital purposes (Code 1930, section 3108(f), as amended by Laws 1932, chapter 289).

2. TAXATION.

A hospital which was operated primarily for care of patients who paid therefor, and wherein care of charity patients was neither sought nor encouraged, was exempt from taxation, as against contention that hospital was operated for profit, where income of hospital other than that allocated to current expenses was being used to liquidate bona fide debt incurred by hospital in purchase of its property (Code 1930, section 3108(f), as amended by Laws 1932, chapter 289, section 4130 et seq., as amended; section 4131).

APPEAL from the circuit court of Hinds county. HON. J.P. ALEXANDER, Judge.

H.V. Watkins and Ralph B. Avery, of Jackson, and W.W. Pierce, Assistant Attorney-General, for appellant.

Statutes granting exemptions must be strictly construed. It is a well recognized principle of law that this court has laid down many times that any statute granting an exemption must be strictly construed against the exemption applied for. Taxation is the rule, exemption is the exception. The claimant has the burden of clearly proving his rights to the exemption and all reasonable doubts must be resolved against the claimant.

Leaf Hotel Corp. v. City of Hattiesburg, 168 Miss. 304, 150 So. 779.

Jackson Infirmary was a corporation organized for profit.

The stockholders of Jackson Infirmary have not lost control of the hospital property or their right to participate in profits from its operation.

Town of Montclair v. State Board of Equalization of Taxes, 86 N.J.L. 497, 92 A. 270; Carteret Academy v. State Board of Taxes and Assessments, 98 N.J.L. 868, 120 A. 736; Princeton County Day School v. State Board of Tax Appeals, 175 A. 136; Dwight School of Englewood v. State Board of Tax Appeals, 177 A. 876.

It is our serious contention that even though the new corporation was formed in this case, with a charter provision that the same was not to be operated for profit, the Jackson Infirmary is still being managed for the purpose of making a profit for its original stockholders, who have not in any wise lost control of the property because of the enormous indebtedness which the new corporation assumed and which very apparently cannot be paid off. The transcript shows that the interest on the second mortgage bonds had not been paid at the date of the hearing in the circuit court and it will be remembered that the interest rate changed to eight per cent after maturity. Even if the hospital makes a small amount of money each year in excess of its operating expenses, the stockholders of the Jackson Infirmary, who now appear before the court in the shape of bondholders, can be assured of getting six per cent or eight per cent return on their investment for twenty years.

The court recently decided the case of Board of Supervisors of Warren County v. Vicksburg Hospital, Inc., 173 Miss. 805. This case was used in support of the appellee's position in the lower court, but upon examination of the facts in this case it is readily apparent that the two cases are not on all fours. In the Vicksburg case a new corporation, not for profit, was organized and it took over the assets of the old corporation, but an examination of the opinion written by this Honorable Court and the evidence in the case as disclosed by the transcript, will fail to disclose any further similarity of facts. No question of profit to former stockholders was involved.

The income from the hospital is used partly for business purposes. It will be remembered that the consideration for the conveyance to the Jackson Hospital Benevolent Association of certain properties was the assumption by the grantee of all of the debts of the old corporation and as has been pointed out, a portion of the income from the hospital is being used to pay off the purchase price of the property.

Senter v. City of Tupelo, 136 Miss. 269, 101 So. 372; Gunter v. City of Jackson, 130 Miss. 637, 94 So. 844.

The income from the hospital is being used for a business purpose, to-wit, in payment of the balance due on the purchase price of the property. When the first mortgage bonds are retired, the recipients of this income will be the stockholders of the Jackson Infirmary. Certainly, it cannot be said that the payment to the former stockholders of six per cent on their investment for twenty years, plus a return of the original stock investment, if the apparent plan could be carried out, is an expenditure of income for the purposes of the hospital.

We respectfully submit that the Jackson Infirmary is still being operated for the benefit of the original stockholders of the Jackson Infirmary, that there has been no actual change in the operation of the hospital after the transfer, and that the new corporation should be held liable for the payment of ad valorem taxes on the property.

Harry M. Bryan, of Jackson, for appellee.

The statute relied upon by the appellee here is par. (f), section 3108, Code of 1930.

This court in 1935 in the case of Board of Supervisors of Warren County v. Vicksburg Hospital, 173 Miss. 805, 163 So. 382, construed this identical exemption statute, and held that it is immaterial whether the ownership of the hospital property is in a religious, charitable, benevolent or other organization, the exemption fastens, provided the statutory requirements as to use are met.

The case at bar in our opinion is even clearer on the right to exemption than the Vicksburg Hospital case. Every statutory requirement has been fully met. We took the position in the lower court and we take it here that legislative policy in the matter of exemption from taxation is not one with which the courts could be concerned. Whatever our views may be, on whether or not exemptions as such are sound, from a state policy view-point, that is a matter to be dealt with by legislation.

Holly Springs Savings Ins. Co. v. Marshall County, 52 Miss. 281; State ex rel. Orr v. Buder, 271 S.W. 508, 39 A.L.R. 1199.

With the exception of a reference to the Vicksburg Hospital case, and the case of Senter v. City of Tupelo, 136 Miss. 269, 101 So. 372, the only authorities cited by appellant in the case at bar, are decisions of New Jersey courts, in cases involving exemptions of schools. We have carefully read these New Jersey decisions, and respectfully submit that in them runs one fundamental finding by the New Jersey courts, that finding being that those who claimed exemption did not perform the public service required by the exemption statute, by conducting "a charitable and benevolent institution, not conducted for profit;" in other words, that the schools were not "fundamentally charitable or philanthropic" as required by statute.

Y.W.C.A. of Harvey Cedars v. Pelham, 153 A. 397.

A well reasoned hospital case is that of Santa Rosa Infirmary v. City of San Antonio, 259 S.W. 926, decided by the Texas Supreme Court in 1924. It appears that the Santa Rosa Infirmary, Inc., purchased from the Sisters of Charity of the Incarnate Word, its hospital, buildings, grounds, equipment, facilities, etc. A great part of the income from the operation of the hospital by the Santa Rosa Infirmary was expended for the retirement of the principal and interest due as purchase money, a vendor's lien having been retained by the Sisters of Charity when the property was sold to the infirmary. The court held in the above case that the Santa Rosa Infirmary did not lose "its exempt status, because it goes in debt for its plant and pays that debt, and the interest accruing on it out of its incidental earnings. . . ."

The court held in the Santa Rosa case that such expenditures as made out of the profits of the institution were within the purpose thereof. In so holding, this decision is squarely on the question of whether or not the payment of principal and interest on purchase money indebtedness due by the Jackson Hospital Benevolent Association to owners of its assumed bonds is an application of its income "entirely for the purpose of the hospital."

The conclusion reached by the court in the Senter case is sound, for, under the factual situation there present, the payment of purchase money was a devotion of income for business purposes, the purchase of property in no wise used for fraternal and benevolent purposes by the Masonic bodies.

Here, every cent paid for the purchase price of the hospital goes directly into the liquidation of a debt for that which is absolutely performing the public service required by the act.

The Jackson Hospital Benevolent Association, as shown by this record, is honestly and in good faith rendering the public service required of it by the legislature and is entitled to its exemption from taxation.

W.E. Morse, of Jackson, amicus curiae.

Section 3108 of the Code of 1930 is the act upon which the appellee claims an exemption. We think that an analysis of this provision of the law, which was brought forward as Chapter 157 of the Laws of the State of Mississippi of 1934, shows that it was not the intention of the Legislature to permit corporations already set up to simply change the structure, secure tax exemptions and continue the operation free of taxes, that being the only material change in the entire structure.

The case of Board of Supervisors v. Vicksburg Hospital is persuasive that the appellee herein is right. The Jackson Infirmary attempted, after this case, to bring itself under the rule laid down in the Board of Supervisors of Warren County v. Vicksburg Hospital, 163 So. 283. There is material variance in the facts between the Vicksburg case and the instant case. In the Vicksburg case, prior to December, 1933, the Vicksburg Hospital was a corporation with a capital stock of $75,000 which appeared to have been issued and paid in. The stock was owned by physicians who constituted the management of the staff of the hospital. In December, 1933, at a stockholders meeting, a resolution amending the charter was made, which was approved by the state. The purpose of the new corporation was set forth and had this provision: "Provided, however, that all of the income and revenue derived from the operation of said hospital and training school for nurses, be used and appropriated exclusively, for the maintenance and operation of the said Vicksburg Hospital, Incorporated, and that none of said proceeds or receipts so had and received by the said Vicksburg Hospital, Incorporated, and, or, the training school for nurses, be used or paid out as a profit or dividend to said stockholders." The court said that the proof was uncontradicted that the Vicksburg Hospital lost money and had never made any profit from the beginning of its operation, that all the receipts of the hospital were expended upon the maintenance and operation of it.

The proof showed that in the instant case that there was no change in the charity attitude of the Jackson Benevolent Association before and after it changes its clothes. It was the same person, but the raiment was different. The same body was there, the same personality, the same motives, the same reactions and the same emotions. The nearest approach that I can find to a case of this character in the State of Mississippi was that of Morris v. Riley, decided in 1924, and reported in 99 So. 466.


The appellee is a corporation without a capital stock, chartered under chapter 100, Code 1930 (section 4130 et seq., as amended). The validity of its charter is not challenged; nor are any of its provisions, one of which is, "The purpose for which this corporation is created is to own and operate a hospital in the City of Jackson, Mississippi, for the care of the sick, injured and infirm and others needing hospital care. No profit or gain shall be made from the operation of said hospital or in any other manner. There shall always be maintained one or more charity wards for charity patients, and all income from the said hospital shall be used entirely for the purposes thereof, and no part of same shall be used for profit." It owned land in the city of Jackson, Hinds county, upon which there are two buildings; one used for a hospital, and the other for a nurses' home, on which it was assessed for state and county taxes, the assessed value thereof being $58,000. Objection was made to this assessment by the appellee before the Board of Supervisors of Hinds County, the ground of which is that the appellee's property is exempt from taxation under paragraph (f), section 3108, Code 1930, as amended by Laws 1932, chapter 289. The board overruled this objection and approved the assessment, and an appeal was taken to the court below. The appellee there admitted that its nurses' home was subject to taxation, and, by agreement, a judgment was rendered approving the assessment in so far as it covered that property, which was valued for that purpose at $12,000. The case was then tried on the appellee's claim to an exemption from taxation on its hospital. The parties agreeing, the case was tried by the judge, without a jury, who rendered a judgment allowing the claimed exemption and setting aside the assessment on the appellee's hospital.

Paragraph (f), section 3108, Code 1930 (as amended by Laws 1932, chapter 289), is as follows: "All property, real or personal, whether belonging to religious or charitable or benevolent organizations, which is used for hospital purposes, and nurses homes where a part thereof, and which maintains one or more charity wards that are for charity patients, and where all the income from said hospital and nurses' home is used entirely for the purposes thereof and no part of the same for profit." If the appellee maintained "one or more charity wards that are for charity patients" and does not appropriate any of its income to profit, but appropriates all of it to hospital purposes, its claim for an exemption from taxation on its hospital should be allowed. While there is some discrepancy in the evidence of the appellee relative thereto, the court below was warranted in believing that it devotes four of its beds to charity patients and receives and cares for a small number of such patients; and we do not understand counsel for the appellant to claim that this provision of the statute was not complied with. So we come at once to whether the appellee's hospital was operated for profit.

The evidence discloses, in substance, that in November, 1933, the Jackson Infirmary, a corporation, owned the property here in question, including the nurses' home, which it used for a hospital and nurses' home, on which there was a deed of trust securing bonds to the amount of $37,000 that had been issued by it. On the 24th day of that month, a meeting was held in which the officers and stockholders of the Jackson Infirmary participated, and resolved to organize a corporation to be known as "Jackson Hospital Benevolent Association for the purpose of operating a charitable hospital in the City of Jackson, Mississippi." A charter therefor was then prepared, and on the next day was approved in accordance with section 4131, Code 1930. The incorporators, all of whom were stockholders of the Jackson Infirmary, accepted the charter and organized by electing a president, vice-president, secretary and treasurer from their number.

On the 25th day of the same month, at a meeting of the directors of the Jackson Infirmary, the following resolutions were passed: (1) Authorizing the issuance of bonds of the corporation to the amount of $37,000, secured by a deed of trust on the hospital and nurses' home of the corporation, the proceeds of which to be applied to the payment of the $37,000 of bonds hereinbefore set forth; (2) that "all the property belonging to this corporation be sold to the Jackson Hospital Benevolent Association, the consideration of said sale to be that the said Jackson Hospital Benevolent Association assume all of the outstanding debts of this corporation;" (3) that bonds of the corporation in the sum of $102,330 be issued, secured by a second deed of trust on the corporation's hospital and nurses' home to be exchanged "for the outstanding stock of this corporation on the basis of $150.00 of second mortgage bonds for one share of stock, provided that in the case of preferred stockholders, $190.00 of bonds be exchanged for one share of such preferred stock." On the 28th day of the same month, a meeting of the stockholders of the Jackson Infirmary adopted resolutions the effect of which is to approve these resolutions by its board of directors. All of these bonds were issued. The proceeds of the $37,000 bond issue were applied to the payment of the corporation's bonds for that amount which had been theretofore issued and had matured. The bonds of the $102,330 issue were delivered to the stockholders of the Jackson Infirmary in accordance with the resolution so providing, and they surrendered their stock therein.

The minutes of a meeting of the incorporators of the Jackson Hospital Benevolent Association held on December 27, 1933, recite that:

"The committee which was appointed at the November 24th meeting to make recommendations about the construction or acquisition of a hospital to carry out the purposes of the Association made its report. They reported that they had looked into the matter from the standpoint of acquiring a lot and building a hospital and also of purchasing a hospital already in operation; that they had found that the Jackson Infirmary and all of its assets and good will could be acquired by assuming the indebtedness against it; that this indebtedness was represented by a first mortgage bond issue of $37,000.00 and a second mortgage bond issue of $102,330.00. They recommended that the Association buy the Jackson Infirmary and to continue to operate it under that name.

"Upon motion duly made, seconded and carried, the recommendations of the committee were adopted and the purchase of the Jackson Infirmary by the Association on the terms of taking over all of the assets of same and assuming the liabilities was ordered."

Thereafter the Jackson Infirmary executed a deed to the land on which this hospital and nurses' home was situated, to the Jackson Hospital Benevolent Association, the consideration of which is "One Dollar ($1.00) cash in hand paid, and the assumption of and agreement to pay by the grantee herein all of the outstanding debts of the grantor, whether open accounts or secured debts." Whether the Jackson Infirmary owed any debts other than the bonds hereinbefore set forth does not appear. The Jackson Hospital Benevolent Association then entered into possession of the property and thereafter used the property for a hospital and a nurses' home.

It is said by counsel for the appellant that the capital stock of the Jackson Infirmary, fixed by its charter, is $75,000. The charter of the Jackson Infirmary was not introduced in evidence, and we find no reference in the evidence to the amount of its capital stock; but, as this statement by counsel for the appellant is not denied by counsel for the appellee, we will assume that it is verified by the record. The value of the property sold by the Jackson Infirmary to the Jackson Hospital Benevolent Association, other than that at which it was assessed for taxation, does not appear. Eighty per cent. of the $102,330 bond issue is now owned by the appellee incorporators who now constitute the governing board, none of whom receive any compensation for services as such. It is clear from the evidence that this hospital is operated by the appellee primarily for the care of patients who pay therefor, and that the care of charity patients is but an incident thereto and is neither sought nor encouraged.

The contention of counsel for the appellant that this hospital is operated for profit is based on two facts: (1) The stockholders of the Jackson Infirmary, who formerly owned and operated it, simply changed the character of their investment from stock in that corporation on which they received, or were entitled to receive, dividends to interest-bearing bonds of the appellee, and they now receive in the form of interest practically what they would have received as dividends on their corporate stock; and (2) that the incorporators of the appellee corporation, who are now operating the hospital, were officers, directors, and stockholders of the Jackson Infirmary. We are unable to say that these facts negative appellee's claim that its hospital is not operated for profit.

Under the statute, a hospital claiming the exemption, thereunder granted, may be operated for profit to this extent: That its income may exceed its expenses, provided all of the income is devoted to hospital purposes. To what extent its income would be permitted to exceed its expenses is not before us on this record. In order for us to hold that the appellee's hospital is being operated for profit, it would have to appear that profit was in fact made and was for the benefit of its incorporators, or of persons to whom they paid it. The income of the appellee other than that allocated to its current expenses is being used to liquidate a debt incurred by it in the purchase of its property, which debt it had the right to incur, and, therefore, to pay. If the evidence disclosed that the income of the appellee is being applied to the payment of the debts fictitious in whole or in part, or that the value of the property purchased by it, including the good will of the Jackson Infirmary from which it was purchased, was so much less than what the appellee agreed to pay for it as to challenge the good faith of the purchase, a different question would be presented, on which, of course, we express no opinion.

The New Jersey cases cited by counsel for the appellant seem to sustain their contention here; but if so, we are unable to follow them; and Senter v. City of Tupelo, 136 Miss. 269, 101 So. 372, is not here in point.

Affirmed.


Summaries of

Board of Sup'rs v. Benevolent Ass'n

Supreme Court of Mississippi, Division A
Nov 22, 1937
177 So. 27 (Miss. 1937)
Case details for

Board of Sup'rs v. Benevolent Ass'n

Case Details

Full title:BOARD OF SUP'RS OF HINDS COUNTY v. JACKSON HOSPITAL BENEV. ASS'N

Court:Supreme Court of Mississippi, Division A

Date published: Nov 22, 1937

Citations

177 So. 27 (Miss. 1937)
177 So. 27

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