Mid-Atlantic Health Law TOPICS

The Connecticut Supreme Court recently considered the question of whether a skilled nursing facility operated by a charitable organization, that provides both long-term chronic care and short-term rehabilitative services, is entitled to a property tax exemption.
St Joseph's Living Center, in Windham, Connecticut applied for a property tax exemption from Connecticut. That exemption was denied, even though St. Joseph's is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code.
On appeal, the Connecticut Supreme Court, in St. Joseph's Living Center, Inc. v. Windham, Conn., considered the relevant Connecticut statute, which establishes property tax exemption when (1) the property is owned by a corporation organized exclusively for charitable purposes and (2) the property is used exclusively for carrying out such purposes.
A. Organized for Charity
To determine if the corporation was organized exclusively for charitable purposes, the court considered three points: (1) whether the corporation had actually been organized for a charitable purpose; (2) whether the corporation was self supporting; and (3) whether the corporation's activities relieve a burden on the State.
St. Joseph's articles of incorporation stated that it was formed for charitable purposes to "develop, operate and maintain a chronic and convalescent care nursing home (i.e., skilled nursing facility)." The court noted decisions in other jurisdictions holding that the provision of health care for the elderly is considered a charitable purpose, and held that St. Joseph's was organized for charitable purposes.
The court also held that St. Joseph's relieved a State burden, noting that, even though it applied for and accepted taxpayer funding through the Medicare and Medicaid programs, such funding is often deficient. Therefore, the court concluded that St. Joseph's was organized exclusively for charitable purposes.
B. Used for Charity
With respect to the requirement that the property be used exclusively for carrying out the corporation's charitable purposes, the court held that short term rehabilitative care is not a charitable purpose. However, the court also noted that the entire property need not be used directly for a charitable purpose to qualify for a tax exemption.
For instance, the court cited a decision in which a tax exempt hospital found it necessary to provide housing for its staff in close proximity to the hospital. The court held that the housing property was tax exempt even though it was not used directly for hospital purposes, since the property was "indispensable to the accomplishment of the permissible tax-exempt purpose."
In this case, however, the court found that St. Joseph's rehabilitative services were "neither indispensable nor incidental" to the stated charitable purpose of operating a long-term chronic care facility. Furthermore, the rehabilitative services and long-term chronic care "aspects of the Center's operations are fully integrated and intertwined." Therefore, the court held that the facility was not used exclusively for charitable purposes and was not entitled to a property tax exemption.
Had the rehabilitative service area been physically separated from the area where long term chronic care was provided, then the long term chronic care area of the property might have been entitled to a tax exemption. In fact, the court held that the chapel in the facility (which the court held was devoted exclusively to a charitable purpose) was entitled to a property tax exemption based upon such a physical separation.
As states and municipalities become more strapped for cash, controversies similar to St. Joseph Living Center's may become more prevalent. Whether a facility will find itself subject to such a challenge will depend on the inclinations of local government officials, the language of the applicable property tax exemption statute, and the facility's particular facts.