Mark W. Matkovich, State Tax Comm. v. University Healthcare Foundation, Inc.
238 W. Va. 345
| W. Va. | 2016Background
- University Healthcare Foundation (the Foundation), a 501(c)(3) supporting Berkeley Medical Center (BMC), sought ad valorem property tax exemption for the Dorothy McCormack Cancer Treatment & Rehabilitation Center (the Center).
- The Berkeley County Assessor denied exemption for 2014; the State Tax Commissioner issued Property Tax Ruling 14-01 denying exemption; Foundation appealed to circuit court.
- Circuit Court (Business Court Division) reversed the denials, finding the Center’s tenants primarily and immediately served the joint charitable purposes of the Foundation and BMC and thus the property was used exclusively for charitable purposes.
- The Center contained multiple tenants, including three for-profit entities and a Wellness Center with substantial public gym memberships; only ~28% of the Center’s physical space was used for demonstrably charitable functions.
- The Supreme Court of Appeals reversed the circuit court, holding that leasing portions of charitable property to private, non-qualifying (for-profit) entities prevents a full exemption; physical use controls, not application of rental income to charitable purposes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Foundation is entitled to full ad valorem exemption for the entire Center under W.Va. Code § 11-3-9(a)(12) | Foundation: Entire Center furthers its charitable purpose (supporting BMC); rental income is applied to charitable uses so property is effectively used for charity | Commissioner/Assessor: Portions leased to for-profit tenants and public Wellness Center use are non-charitable; statute requires exclusive/primary and immediate charitable use of property itself | Held: Not exempt. Leasing to private non-qualifying entities and non-patient recreational use defeats exclusive charitable use; physical use, not income application, determines exemption |
| Whether application of rental proceeds to charitable purposes can cure non-charitable physical use | Foundation: Revenues are reinvested in charitable services, so character of property is charitable | Commissioner/Assessor: Proceeds do not change character of the property's physical use; precedent rejects that transformation | Held: Rejected. Income application does not transform property use; precedent bars exemption when property is leased for private profit |
| Whether precedent allowing exemption where a charitable lessor leases to a charitable lessee applies | Foundation: Reliance on Appalachian Emergency — leasing can preserve exemption where tenants are charitable | Commissioner/Assessor: Distinguishes Appalachian Emergency (lessee there was 501(c)(3)); here lessees are for-profit/non-qualifying | Held: Distinguished. Appalachian Emergency consistent with rule: lessee’s qualifying charitable use matters; not applicable where lessees are non-qualifying |
| Standard for determining "exclusive" charitable use (physical use vs. organizational purpose) | Foundation: Emphasize Foundation/BMC shared charitable mission; overall purpose of owner should control | Commissioner/Assessor: Focus on physical, immediate use of property by tenants; owner’s purpose insufficient | Held: Physical, primary and immediate use of the property controls; owner’s charitable status/purpose alone cannot confer exemption when parts are used commercially |
Key Cases Cited
- United Hosp. Ctr., Inc. v. Romano, 233 W.Va. 313, 758 S.E.2d 240 (2014) (use of property must be primary and immediate to qualify for exemption)
- Wellsburg Unity Apartments, Inc. v. County Comm’n of Brooke Cty., 202 W.Va. 283, 503 S.E.2d 851 (1998) (two-prong test for exemption: qualifying charitable organization and exclusive charitable use)
- Central Realty Co. v. Martin, 126 W.Va. 915, 30 S.E.2d 720 (1944) (real estate leased for private purposes is not exempt despite income being used charitably)
- State v. McDowell Lodge, 96 W.Va. 611, 123 S.E. 561 (1924) (application of rental proceeds to charitable purposes does not change taxable character when property is leased commercially)
- Appalachian Emergency Medical Servs., Inc. v. State Tax Comm’r, 218 W.Va. 550, 625 S.E.2d 312 (2005) (exemption allowed where lessee was a qualifying 501(c)(3) entity and used leased property for charitable purposes)