Dialysis Ctrs. of Dayton, L.L.C. v. Testa (Slip Opinion)
80 N.E.3d 477
Ohio2017Background
- Dialysis Centers of Dayton, L.L.C. (DCD) operated four dialysis facilities; Miami Valley Hospital (a 501(c)(3) nonprofit) became DCD’s sole member effective August 1, 2006, making DCD a disregarded entity for federal tax purposes thereafter.
- DCD treated referred patients regardless of ability to pay, attempted to secure Medicare/Medicaid/private insurance before applying charitable care, and reported charity care for 2007 (~$435,000 for ~150 patients).
- Some clinic space at three of the four properties was leased to private physician groups for physician offices under long-term leases predating 2006–2007.
- DCD applied for property-tax exemption for tax year 2007 and requested remission for tax year 2006; the Tax Commissioner denied exemption, the BTA affirmed, and DCD appealed to the Ohio Supreme Court.
- The BTA relied on an asserted lack of sufficient charitable care; the Supreme Court reviewed whether nondiscriminatory provision of services (not a quantified amount of uncompensated care) controls exemption eligibility and whether leased physician space must remain taxable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether property qualifies for charitable-use exemption for tax year 2007 | DCD: after hospital became sole member, DCD’s nonprofit charitable purpose and nondiscriminatory treatment of patients qualify facilities for exemption regardless of a required quantum of unreimbursed care | Tax Commissioner/BTA: DCD failed to prove a sufficient level of charitable (unreimbursed) care to qualify | Court: Nondiscrimination and charitable purpose control; no threshold quantum of unreimbursed care required — facilities (except leased physician offices) qualify for exemption for 2007 |
| Whether remission of taxes paid for tax year 2006 is warranted | DCD: (implicit) remission appropriate because DCD provided charitable services | Tax Commissioner/BTA: On Jan 1, 2006 private physicians still owned DCD; thus property was not used exclusively for charitable purposes on the tax-lien date | Court: Remission denied for 2006 because private physicians’ ownership on the tax-lien date defeated exclusive charitable use |
| Treatment of clinic space leased to private physicians | DCD: overall facility charitable; leased portions should not defeat whole-property exemption | Tax Commissioner/BTA: Leases to private physicians undermine charitable use and support denial | Court: Space leased to private physicians does not qualify for exemption and must be split-listed as taxable; remainder exempt for 2007 |
| Proper forum and remedy for determining exempt vs. taxable portions | DCD: (implicit) BTA decision should be reversed and exemption applied | Tax Commissioner/BTA: Affirm broad denial | Court: Reverse BTA as to 2007 and remand to Tax Commissioner (not BTA) to determine, as of the tax-lien date, the square footage leased to physicians to split-list property accordingly |
Key Cases Cited
- Sylvania Church of God v. Levin, 118 Ohio St.3d 260 (use of property judged as of tax-lien date)
- First Baptist Church of Milford, Inc. v. Wilkins, 110 Ohio St.3d 496 (owner’s use, not lessee’s, governs charitable-use analysis)
- Dialysis Clinic, Inc. v. Levin, 127 Ohio St.3d 215 (no required threshold of unreimbursed care; modern payors do not destroy charitable status)
- Rural Health Collaborative of S. Ohio, Inc. v. Testa, 145 Ohio St.3d 430 (Medicare/Medicaid constraints and charitable-use analysis)
- White Cross Hosp. Assn. v. Bd. of Tax Appeals, 38 Ohio St.2d 199 (space leased to for-profit physicians is not exempt)
- Bethesda Healthcare, Inc. v. Wilkins, 101 Ohio St.3d 420 (opening property to public/who benefits is central to charitable use)
- The Chapel v. Testa, 129 Ohio St.3d 21 (split-listing and remand to determine exempt acreage/square footage)
- Anderson/Maltbie Partnership v. Levin, 127 Ohio St.3d 178 (burden on taxpayer to prove statutory exemption applies)