PROMED HEALTHCARE V CITY OF KALAMAZOO
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STATE OF MICHIGAN
COURT OF APPEALS
PROMED HEALTHCARE,
FOR PUBLICATION
February 1, 2002
9:00 a.m.
Petitioner-Appellant,
v
No. 224440
Tax Tribunal
LC No. 00-236826
CITY OF KALAMAZOO,
Respondent-Appellee.
Updated Copy
April 26, 2002
Before: O'Connell, P.J., and White and Smolenski, JJ.
SMOLENSKI, J.
Petitioner ProMed Healthcare appeals as of right from the Tax Tribunal order denying its
request for tax-exempt status concerning ad valorem taxation on its personal property by
respondent city of Kalamazoo. ProMed claimed that it qualified for either the "public health
exemption," MCL 211.7r, or the "charitable purpose exemption," MCL 211.7o. Petitioner and
respondent presented the dispute to the Tax Tribunal pursuant to a lengthy stipulation of facts.
The Tax Tribunal ruled that ProMed was not entitled to either of the claimed tax exemptions.
ProMed appeals as of right. We affirm.
I. Standard of Review
In Rose Hill Center, Inc v Holly Twp, 224 Mich App 28, 31; 568 NW2d 332 (1997), this
Court set forth the standard by which we review decisions of the Tax Tribunal:
Judicial review of a determination by the Tax Tribunal is limited to
determining whether the tribunal made an error of law or applied a wrong [legal]
principle. Generally, this Court will defer to the Tax Tribunal's interpretation of a
statute that it is delegated to administer. The factual findings of the tribunal are
final, provided that they are supported by competent, material, and substantial
evidence on the whole record. [Citations omitted.]
II. Burden of Proving Entitlement to a Tax Exemption
In its initial opinion, the Tax Tribunal ruled that a petitioner seeking a tax exemption
bears the burden of proving its entitlement to the exemption beyond a reasonable doubt. After
ProMed filed a motion for reconsideration, the Tax Tribunal modified its ruling, determining that
a petitioner need only establish its entitlement to an exemption by a preponderance of the
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evidence. The Tax Tribunal concluded that ProMed had failed to establish its entitlement to
either of the claimed tax exemptions by a preponderance of the evidence. On appeal, the parties
contest the burden of proof that should be applied to a petitioner's request for tax-exempt status.
We conclude that the Tax Tribunal correctly applied the preponderance of the evidence standard
in the present case.
In order to determine the applicable burden of proof in tax exemption cases, we begin by
examining precedent from our Supreme Court. In Ladies Literary Club v Grand Rapids, 409
Mich 748, 754; 298 NW2d 422 (1980), the Court quoted with favor the following passage from
Justice Cooley's treatise on taxation:
'Exemptions are never presumed, the burden is on a claimant to establish
clearly his right to exemption, and an alleged grant of exemption will be strictly
construed and cannot be made out by inference or implication but must be beyond
reasonable doubt.' (Quoting 2 Cooley on Taxation [4th ed], § 672, pp 1403-1404
[emphasis added].)
From the above language, we might draw the conclusion that a petitioner must prove its
entitlement to a claimed tax exemption beyond a reasonable doubt. However, we note that the
Ladies Club decision did not directly consider the appropriate burden of proof in tax exemption
cases, and merely included the above quotation during its general explanation of tax exemption
principles.
Several decisions of this Court have more directly addressed the appropriate burden of
proof in tax exemption cases. First, in Retirement Homes of the Detroit Annual Conference of
the United Methodist Church, Inc v Sylvan Twp, 92 Mich App 560, 563; 285 NW2d 375 (1979),
rev'd on other grounds 416 Mich 340; 330 NW2d 682 (1982), this Court held that the standard of
proof depends on the type of claim that the petitioner advances before the Tax Tribunal. This
Court ruled that the beyond a reasonable doubt standard applies when the petitioner attempts to
establish that an entire class of exemptions was intended by the Legislature. Id. However, the
preponderance of the evidence standard applies when the petitioner attempts to establish that it is
a member of an already exempt class. Id.1
Four years later, in Michigan United Conservation Clubs v Lansing Twp, 129 Mich App
1, 11; 342 NW2d 290 (1983), mod on other grounds 423 Mich 661; 378 NW2d 737 (1985), this
Court held that a petitioner before the Tax Tribunal must establish its entitlement to a tax
exemption beyond a reasonable doubt. The decision did not discuss the Retirement Homes
ruling and did not indicate that the applicable burden of proof differed depending on the type of
claim advanced by the petitioner. Rather, the decision relied on Justice Cooley's remarks as
quoted in Ladies Club, supra.
1
Respondent argues that the Retirement Homes decision lacks precedential value because our
Supreme Court's subsequent decision in Ladies Club, supra, applied the beyond a reasonable
doubt standard to the petitioner's exemption claim. We disagree. As explained above, the
Ladies Club decision did not directly consider the burden of proof issue.
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Finally, in Holland Home v Grand Rapids, 219 Mich App 384, 393-394; 557 NW2d 118
(1996), this Court returned to the holding of Retirement Homes, recognizing a distinction
between a petitioner's attempt to establish a class of exemptions and an attempt to establish
membership in an already exempt class. Because the petitioner in that case was attempting to
prove the latter, this Court held that the preponderance of the evidence standard applied and that
the Tax Tribunal committed error requiring reversal in applying the beyond a reasonable doubt
standard to the petitioner's claim. Id. at 394-395.
Because our Supreme Court did not directly address the proper burden of proof in the
Ladies Club decision, and because this Court is required to follow the Holland Home ruling
under MCR 7.215(I)(1), we conclude that the beyond a reasonable doubt standard applies only
when a petitioner before the Tax Tribunal attempts to establish a class of exemptions; the
preponderance of the evidence standard applies to a petitioner's attempts to establish membership
in an already exempt class.2 In the present case, there is no question that the public health
exemption and the charitable purpose exemption are established classes of exemptions. MCL
211.7o, 211.7r. The issue presented here is whether ProMed properly established membership in
either one of those exempt classes. Accordingly, we conclude that the Tax Tribunal properly
recognized that ProMed was only required to establish its entitlement to exemption by a
preponderance of the evidence.
ProMed next argues that the Tax Tribunal's decision should be reversed because the
tribunal applied the incorrect burden of proof below. We note that the Tax Tribunal explicitly
stated that it had applied the preponderance of the evidence standard and found ProMed's claim
wanting. Nevertheless, ProMed argues that the tribunal's decision erected so many "irrational or
unlawful barrier[s]" to ProMed's claimed tax-exempt status that the tribunal must have applied
the beyond a reasonable doubt standard. We disagree. ProMed has simply failed to prove its
entitlement to either of the claimed exemptions by a preponderance of the evidence.
III. Ownership of Real Property and the Public Health Exemption
ProMed argues that it is entitled to an exemption from ad valorem taxation on its personal
property under MCL 211.7r, the "public health exemption." The statute provides, in pertinent
part:
The real estate with the buildings and other property located on the real
estate on that acreage, owned and occupied by a nonprofit trust and used for
hospital or public health purposes is exempt from taxation under this act, but not
including excess acreage not actively utilized for hospital or public health
purposes and real estate and dwellings located on that acreage used for dwelling
purposes for resident physicians and their families. [MCL 211.7r]
The Tax Tribunal ruled that a petitioner seeking an exemption under MCL 211.7r is
required to prove that it owns the real property on which the personal property subject to the tax
2
Furthermore, we do not believe that Ladies Club necessarily conflicts with Holland Home
because the latter decision recognized that the beyond a reasonable doubt standard applies in
certain cases, i.e., where the petitioner seeks to establish a class of exemptions.
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is located. Because ProMed failed to prove that it owned the real property, the Tax Tribunal
concluded that it was not entitled to exemption under MCL 211.7r.3 On appeal, ProMed does
not contend that it owned the real property during the relevant period. Rather, ProMed argues
that the statute does not require ownership of the real estate on which the personal property is
located, but requires only that the petitioner own the personal property in question.
In Rose Hill, supra at 32, this Court set forth the applicable principles of statutory
construction:
Statutory interpretation is a question of law subject to review de novo on
appeal. The primary goal of statutory interpretation is to ascertain and give effect
to the intent of the Legislature in enacting a provision. Statutory language should
be construed reasonably, keeping in mind the purpose of the statute. The first
criterion in determining intent is the specific language of the statute. If the
statutory language is clear and unambiguous, judicial construction is neither
required nor permitted, and courts must apply the statute as written. However, if
reasonable minds can differ regarding the meaning of a statute, judicial
construction is appropriate. [Citations omitted.]
On appeal, we will defer to the Tax Tribunal's interpretation of a statute that it is
delegated to administer. Id. at 31. Furthermore, we must strictly construe tax exemption statutes
in favor of the taxing unit. Ladies Club, supra at 753.
"An intention on the part of the legislature to grant an exemption from the
taxing power of the state will never be implied from language which will admit of
any other reasonable construction. Such an intention must be expressed in clear
and unmistakable terms, or must appear by necessary implication from the
language used, for it is a well-settled principle that, when a special privilege or
exemption is claimed under a statute, charter or act of incorporation, it is to be
construed strictly against the property owner and in favor of the public. This
principle applies with peculiar force to a claim of exemption from taxation." [Id.
at 754, quoting 2 Cooley on Taxation (4th ed), § 672, pp 1403-1404.]
When we examine the relevant statutory language, we see that the act exempts from
taxation "[t]he real estate with the buildings and other property located on the real estate on that
acreage, owned and occupied by a nonprofit trust . . . ." MCL 211.7r. We agree with the Tax
Tribunal's determination that the statute grants an exemption only to a nonprofit trust that owns
the real estate on which the personal property subject to the tax is located.4
3
The Tax Tribunal also noted that ProMed sought exemption for personal property only, and did
not seek exemption for the real property on which the personal property was located.
4
Our Supreme Court has interpreted the term "nonprofit trust" to include nonprofit corporations.
Oakwood Hosp Corp v State Tax Comm, 385 Mich 704, 708; 190 NW2d 105 (1971). Therefore,
it is clear that ProMed qualifies as a "nonprofit trust" within the meaning of MCL 211.7r.
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Acceptance of ProMed's argument would compel a conclusion that the statutory phrase
"owned and occupied by a nonprofit trust" modifies only the phrase "other property," and does
not modify the phrase "[t]he real estate with the buildings and other property located on [it] . . . ."
However, the statute does not refer to personal property standing alone, but refers only to
personal property located on real property owned and occupied by a nonprofit trust. Therefore,
we conclude that ProMed's argument on this point is without merit. Construing the statutory
language strictly in favor of respondent and giving deference to the Tax Tribunal's interpretation
of the statute, we conclude that ProMed failed to prove its entitlement to exemption under MCL
211.7r.5
IV. Charitable Purpose Exemption
ProMed next argues that it is entitled to an exemption from ad valorem taxation on its
personal property under MCL 211.7o, the "charitable purpose exemption." The statute provides,
in pertinent part: "[p]roperty owned and occupied by a nonprofit charitable institution while
occupied by that nonprofit charitable institution solely for the purposes for which it was
incorporated is exempt from the collection of taxes under this act." MCL 211.7o(1).6 The Tax
Tribunal ruled that ProMed failed to qualify for this exemption because ProMed had failed to
document the amount of charity services that it provided to members of the public. We agree
that ProMed failed to carry its burden of proving entitlement to the claimed tax exemption.
In Moorland Twp v Ravenna Conservation Club, Inc, 183 Mich App 451, 457-458; 455
NW2d 331 (1990), this Court addressed a petitioner's claim to exemption under MCL 211.7o:
We now address the RCC's claim to an exemption as a charitable
organization. MCL 211.7o; MSA 7.7(4-l). In [Michigan United Conservation
Clubs v Lansing Twp, 423 Mich 661, 671; 378 NW2d 737 (1985)], the following
definition was reaffirmed as the proper test to apply for determining the existence
of a charitable exemption:
"[C]harity . . . [is] a gift, to be applied consistently with existing laws, for
the benefit of an indefinite number of persons, either by bringing their minds or
hearts under the influence of education or religion, by relieving their bodies from
disease, suffering or constraint, by assisting them to establish themselves for life,
or by erecting or maintaining public buildings or works or otherwise lessening the
burdens of government."
The proper focus of this test is whether the organization's activities, taken
as a whole, constitute a charitable gift for the benefit of the general public without
restriction or for the benefit of an indefinite number of persons. MUCC, supra at
673. [Original emphasis omitted.]
5
Given this conclusion, we need not decide whether ProMed used the subject personal property
for "public health purposes" under MCL 211.7r.
6
Because the Tax Tribunal issued its decision on October 18, 1999, we apply the statutory
language in effect at that time.
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Although ProMed argues that it qualifies as a charitable institution under this definition,
the Tax Tribunal concluded that it does not. ProMed argues that the Tax Tribunal's decision
"impermissibly questions and contravenes the parties' sacrosanct stipulation" that ProMed
provided "an appropriate level of charity care" consistent with its status as a nonprofit
corporation. In effect, ProMed argues that the parties stipulated that ProMed is a charitable
institution within the meaning of MCL 211.7o. However, ProMed's argument is unsupported by
the language of the parties' stipulation, which states:
ProMed's activities are governed by a formal Charity Care Policy which
requires ProMed to . . . provide an appropriate level of charity care to residents of
the community whose care is not fully covered under governmental or private
payment programs and who are not otherwise able to pay fully for their care. The
charity care services which ProMed must provide include all medical care and
diagnostic services available to other ProMed patients.
Clearly, the parties did not stipulate that ProMed actually provided an "appropriate level of
charity care" to members of the public during the tax years at issue. Rather, the stipulation
simply provided that ProMed's internal policies required ProMed to do so. ProMed failed to
present to the Tax Tribunal any evidence that it complied with this internal charity policy.
Further, ProMed failed to present evidence that its provision of charitable medical care
constituted anything more than an incidental part of its operations.
In fact, it appears from the record that ProMed operates a fairly typical family medical
practice, where patients are expected to pay for medical care received, either through private or
governmental insurance programs. Although ProMed claims that it provides some medical care
to indigent patients without charge, ProMed failed to provide any documentation regarding such
services. If we were to accept ProMed's argument and reverse the Tax Tribunal's ruling in the
present case, we would in effect be granting tax-exempt status to every doctor's office in the
state, as well as every organization offering health-related services, as long as those
organizations are structured as nonprofit corporations and maintain policies of offering some
"appropriate" level of charity medical care to indigent persons. We cannot conclude that the
Legislature intended MCL 211.7o and 211.7r to create such a result.
Affirmed.
/s/ Michael R. Smolenski
/s/ Peter D. O'Connell
/s/ Helene N. White
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