12 Or. Tax 305 | Or. T.C. | 1992
Submitted on Motions for Summary Judgment.
Decision for plaintiff rendered October 21, 1992.
This matter is before the court on Cross Motions for Summary Judgment. The issue is whether the gift shop area in plaintiff's hospital is subject to property taxation. Defendant concedes plaintiff is a charitable organization entitled to claim exemption under ORS
The relevant portion of ORS
"Upon compliance with ORS
307.162 ,1 the following property owned or being purchased by incorporated literary, benevolent, charitable and scientific institutions shall be exempt from taxation:"(a) * * * [O]nly such real or personal property, or proportion thereof, as is actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions."
1. It must be remembered that exemption statutes such as this are strictly construed. Taxation is the rule; exceptions must be expressly granted. The long-standing rule in Oregon is that "an exemption should be denied to exist, unless it be so clearly granted as to be free from reasonable doubt."Behnke-Walker v. Multnomah County,
2. "Hospitals, as such, enjoy no inherent exemption from taxation; * * *." Corporation of Sisters of Mercy v. Lane Co.,
"Hospitals * * * have long been accorded an unusual consideration (unlike most exempt institutions) in that the entity is permitted to charge its patients reasonable fees and still be regarded as charitable."
That opinion goes on to quote from Benton County v. Allen,
"The exigencies of frontier life, however, no doubt caused western courts to take a broader and more generous view. Particularly was this true in relation to the establishment of hospitals, which, under frontier conditions, were greatly needed, and public policy encouraged their establishment by exempting their property from taxation where they could, even in a slight degree, qualify as charitable institutions. It is perhaps impossible to establish a definite yardstick; each case must be considered upon its own facts."
The Oregon Supreme Court has set out a three-part test that must be met in order for an organization to qualify as a "charitable institution" under ORS
"(1) [T]he organization must have charity as its primary, if not sole, object; (2) the organization must be performing in a manner that furthers its charitable object; and (3) the organization's performance must involve a gift or giving." SW Oregon Pub. Def. Services v. Dept. of Rev.,
312 Or. 82 ,89 ,817 P.2d 1292 (1991).
3. The test is applied to an organization overall and not to any specific part or operation. For example, whether a hospital involves a gift or giving is determined on an overall basis, not by whether the cafeteria, pharmacy or laboratory involves giving. Obviously, hospitals are not free. Anyone who has ever been charged for two aspirin or a band-aid in a detailed hospital bill would, on that basis alone, be certain there is no charity involved. However, as noted above, hospitals historically have been given special consideration. Nonprofit hospitals are not private ventures designed to benefit private investors, but presumably exist for the good of the community.
4, 5. Since defendant concedes plaintiff is a charitable organization, there is no need to apply the three-part test set out above. Consequently, defendant's arguments with regard to the absence of a gift or giving in the operation of the gift shop are irrelevant. If plaintiff's hospital is charitable overall, *308
the fact that some portion of its operation makes a profit is immaterial. It is also immaterial that the operation of the gift shop competes with taxable businesses. See YMCA v. Dept.of Rev.,
In construing the phrase "exclusively used," the Oregon Supreme Court has held that it refers to the primary, as opposed to the incidental use of the property. Mult. School ofBible v. Mult. Co.,
6. To be exempt, property must not only be "exclusively used" by the charitable organization, that use must "substantially contribute" to achieving the organization's purposes.2 Property directly used to accomplish such purposes, such as a classroom in a school or an emergency room in a hospital, raises no questions. The questions arise when property is used only indirectly by the charitable organization.
Two examples will help illustrate the concept. The purpose of a school is to educate. A building used only to house a school's employee is not directly used for education; it is used as a residence. However, if the school needs the employee to be present 24 hours a day, use of the building to *309 house the employee substantially contributes to the overall objectives of the school. Id. at 30. Likewise, a cafeteria in a hospital is not used to heal the sick but to provide food for the staff and visitors. Typically, providing food for staff and visitors is considered to substantially contribute to the operation of a hospital. It is not enough that revenue from the property is used to fund or promote the purposes of the organization. The actual use of the property must be related to those purposes.
In summary, the court must determine what role the use of the property plays in the institution's accomplishment of its charitable purposes. This determination must focus on the relationship of the activity or use to the institution's exempt purposes. For example, in YMCA v. Dept. of Rev.,
Although courts are required to make this determination, reason dictates they should do so with care. Individuals involved in an exempt organization's work, particularly in the area of medicine, have expertise and experience not possessed by the courts. Is making a magazine available to a patient less important than making a cup of coffee available to a visitor? It is these kinds of decisions which should make courts hesitant to substitute their judgment for that of the exempt organization.
Having said this, the question remains: What role does a gift shop play in a hospital's healing objectives? Plaintiff has submitted the affidavit of its hospital administrator who expressed her opinion that plaintiff "must maintain a gift shop such [sic] which offers flowers, candy, reading materials and other sundries desired by its employees, patients and their visitors in order that it fulfill its objective of attending to and enhancing the well-being and health of its patients." This affidavit tends to show that the role of the gift shop is to support plaintiff's primary objective of caring for the sick and injured. *310
Defendant does not dispute that items from the gift shop can bring cheers and smiles to plaintiff's patients; they provide diversion from the boredom and anxiety attending those awaiting operations or recovering from an illness. Flowers and cards lift the spirits and touch the hearts of the depressed and hurting. This transcendental aspect of the healing arts is gaining greater recognition of its importance for the recovery of full health.3
7. Defendant contends the gift shop does not contribute in a substantial way to plaintiff's charitable objectives. Defendant argues that other businesses, such as a rental television shop, could fall into the same category. However, this argument misses the point. Perhaps hospitals of the future will have an in-house movie theater or athletic club. The question is not what activity is being conducted, but how that activity relates to the charitable organization's purposes. Does it substantially contribute to the purposes of the charitable organization?
In this day and age, the therapeutic effects of activities such as reading, television and being cheered by visitors may be viewed as reasonably necessary for the welfare of the patient.4 The emotional "medicine" afforded a patient or family members may be as important in some cases to a successful recovery as any drug or other medication. Defendant has not submitted any affidavits to the contrary. While this is a factual question, defendant has not opposed the exemption on that ground. Rather, defendant's opposition is on legal or theoretical grounds which the court has found not applicable. The court finds that the gift shop area is exempt from property taxation. Now, therefore,
IT IS HEREBY ORDERED that plaintiff's Motion for Summary Judgment is granted; and
IT IS FURTHER ORDERED that defendant's Motion for Summary Judgment is denied.
Costs to neither party.
"To qualify for a charitable exemption under ORS
307.130 , the taxpayer must show first that 'the activity undertaken on the property substantially contributes to the furtherance of the charity's goals.' [O]r, stated another way, that such a use 'is incidental to and reasonably necessary for the accomplishment and fulfillment of the generally recognized functions of such a charitable institution.' " German Apost. Christ. Church v. Dept. of Rev.,279 Or. 637 ,641 ,569 P.2d 596 (1977) (citations omitted) (emphasis added).
Since the defendant has used "substantially contributes" in OAR 150-307.130-(A)(4)(b)(A), the court will use that term.
