Romano was Harrison County Assessor
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The opinion
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
January 2014 Term FILED
March 26, 2014
released at 3:00 p.m.
No. 13-0120 RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
UNITED HOSPITAL CENTER, INC.,
Petitioner Below, Petitioner
v.
CHERYL ROMANO, ASSESSOR OF HARRISON COUNTY,
AND CRAIG GRIFFITH, TAX COMMISSIONER,
Respondents Below, Respondents
_
Appeal from the Circuit Court of Harrison County
Honorable John Lewis Marks, Jr., Judge
Civil Action No. 11-C-124-1
REVERSED
Submitted: January 28, 2014
Filed: March 26, 2014
Michael S. Garrison, Esq. Patrick Morrisey, Esq.
Kelly J. Kimble, Esq. Attorney General
Spilman Thomas & Battle, PLLC Katherine A. Schultz, Esq.
Morgantown, West Virginia Senior Deputy Attorney General
Charleston, West Virginia
Dale W. Steager, Esq. Counsel for Respondent Griffith
Spilman Thomas & Battle, PLLC
Charleston, West Virginia James Armstrong, Esq.
Counsel for Petitioner Harrison County Courthouse
Counsel for Respondent Romano
JUSTICE LOUGHRY delivered the Opinion of the Court.
CHIEF JUSTICE DAVIS dissents and reserves the right to file a dissenting opinion.
SYLLABUS BY THE COURT
1. “Under section 1, art. 10, Const., the exemption of property from taxation
depends on its use. To warrant such an exemption for a purpose there stated, the use must
be primary and immediate, not secondary or remote.” Syllabus, State ex rel. Farr v. Martin,
105 W.Va. 600, 143 S.E. 356 (1928).
2. “In order for real property to be exempt from ad valorem property taxation,
a two-prong test must be met: (1) the corporation or other entity must be deemed to be a
charitable organization under 26 U.S.C. § 501(c)(3) or 501(c)(4) as is provided in 110
C.S.R. § 3-19.1; and (2) the property must be used exclusively for charitable purposes and
must not be held or leased out for profit as is provided in W. Va. Code § 11-3-9.” Syl. Pt.
3, Wellsburg Unity Apartments, Inc. v. County Comm’n of Brooke County, 202 W.Va. 283,
503 S.E.2d 851 (1998).
3. “A constitutional provision authorizing legislative exemption of property
from taxation is strictly construed and nothing can be exempted that does not fall within its
terms; but rational construction within the terms used is required as well as permitted.” Syl.
Pt. 3, State v. Kittle, 87 W.Va. 526, 105 S.E. 775 (1921).
i
4. A healthcare corporation, qualified as a charitable organization under
federal law, whose construction of a replacement hospital facility is substantially complete
on the legal date of assessment and who has significant departmental staff on site working
to fulfill the organization’s charitable purposes, comes within the spirit, purpose, and intent
of the constitutional framers for purposes of entitlement to exemption from ad valorem
property taxation pursuant to West Virginia Code § 11-3-9(a)(12) (2013).
ii
LOUGHRY, Justice:
The petitioner, United Hospital Center, Inc. (the “Hospital”), appeals from the
January 7, 2013, order of the Circuit Court of Harrison County by which the respondents,
Cheryl Romano, the Assessor of Harrison County, and Craig Griffith, the West Virginia Tax
Commissioner,1 were granted summary judgment with regard to the Hospital’s dispute of
its 2011 assessment of ad valorem property taxes for its newly-constructed facility located
in Bridgeport, West Virginia. Given the charitable purpose of its operations, the Hospital
challenges the circuit court’s ruling that it was not entitled to exemption from property taxes
for the subject tax year. In rejecting the Hospital’s appeal, the circuit court focused on the
fact that the Bridgeport location was not physically housing and treating patients on July 1,
2010.2 The Hospital argues that not only was the lower court’s application of the statutory
exemptions at issue contrary to legislative authorization, but it produced a result clearly
adverse to the spirit, purpose, and intent of exempting charitable organizations from ad
valorem taxation. We agree.
1
When this matter was initiated, Mark W. Matkovich was a named party as he was
then serving as the acting tax commissioner. Mr. Griffith was automatically substituted as
a party upon being named as tax commissioner. See W.Va. R. App. P. 41(c).
2
By law, July 1 is the date used for property tax assessment purposes. See W.Va.
Code § 11-3-1(2013). Due to delays precipitated by a water line break, the transfer of the
Hospital’s patients from its Clarksburg facility to the Bridgeport facility did not occur until
October 3, 2010.
1
I. Factual and Procedural Background
For years, the Hospital owned and operated a hospital in Clarksburg, West
Virginia, which was exempt from ad valorem property taxes. This exemption was premised
on the undisputed operation of the Hospital for charitable purposes.3 In 2006, the Hospital
began construction on a new hospital in Bridgeport to replace the aging Clarksburg facility.4
On July 1, 2010–the date used for property tax assessment purposes–the
transfer of patients from the Clarksburg facility to the Bridgeport facility had not yet
occurred. Due to unexpected issues,5 the physical relocation of patients and physicians was
delayed until October 3, 2010.6 Although the doors were not open to patients on July 1,
2010, the Bridgeport facility was 95% complete from a construction standpoint. Prior to
July 1, 2010, the Hospital’s information technology (“IT”) department was both situated
and operating to support the Clarksburg hospital facility’s needs from the Bridgeport locale.
In addition to the IT employees, security employees were on site working at the new hospital
as well as housekeeping staff and climate engineers.
3
As a qualifying charitable corporation, the Hospital was not required to pay federal
income tax, state franchise tax, or state income tax with regard to its Clarksburg operation.
4
An alternate location was chosen for the new facility as there was insufficient real
estate on which to expand or build a new hospital at the Clarksburg locale.
5
See supra note 2.
6
The original plan was for the relocation of patients and staff to occur prior to July 1,
2010.
2
In timely filing its commercial property tax report on June 30, 2010, the
Hospital reported the cost of building materials and other tangible personal property
incorporated into the Bridgeport facility as having a cumulative cost of $108,006,015.80.
The Assessor determined that this tangible personal property had an assessed value of
$62,895,013.00 and the real estate had an assessed value of $1,219,260.00.
Pursuant to West Virginia Code § 11-3-24a (2013), the Hospital inquired of
the respondent assessor by written correspondence dated October 18, 2010, as to whether
its Bridgeport facility was subject to ad valorem property taxes for 2011.7 In a letter dated
October 25, 2010, the assessor concluded the property was taxable, reasoning that “the
property was not being used for any purpose; let alone a charitable purpose” on the July 1st
assessment date. The Hospital requested a tax ruling from the State Tax Commissioner,
who, by letter dated February 28, 2011, similarly advised that the property was taxable.8
On March 29, 2011, the Hospital filed its petition for appeal of the State Tax
7
Respondents agree that the Bridgeport hospital facility is exempt from ad valorem
property taxation for the 2012 tax year and all subsequent years provided its “use remains in
conformity with provisions of West Virginia Code § 11-3-9(a)(12).”
8
In reaching its decision, the tax commissioner relied heavily on a regulation that
addresses when construction initiated on vacant land intended for hospital purposes shall be
viewed as exempt from ad valorem taxation. See 110 C.S.R. § 3-24-17.3 (providing that
“such property shall not be exempt . . . until it has been put to such actual use as to make the
primary and immediate use of the property charitable”).
3
Commissioner’s ruling on the issue of taxability in the Circuit Court of Harrison County.9
The circuit court, without the benefit of an evidentiary hearing, issued its ruling on January
7, 2013, granting summary judgment to the respondents. It is from this adverse ruling that
the petitioner seeks relief.
II. Standard of Review
Because this case involves both the interpretation of statutes and regulations,
our review is de novo. See Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep’t, 195 W.Va.
573, 466 S.E.2d 424 (1995) (“Interpreting a statute or an administrative rule or regulation
presents a purely legal question subject to de novo review.”); see also Syl. Pt. 1, Chrystal
R.M. v. Charlie A.L., 194 W.Va. 138, 459 S.E.2d 415 (1995) (“Where the issue on an appeal
from the circuit court is clearly a question of law or involving an interpretation of a statute,
we apply a de novo standard of review.”); Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451
S.E.2d 755 (1994) (“A circuit court’s entry of summary judgment is reviewed de novo.”).
With this plenary standard in mind, we proceed to consider whether the circuit court erred
in ruling that the Hospital was not entitled to a property tax exemption for its Bridgeport
facility for the tax year 2011.10
9
See W.Va. Code § 11-3-25 (2013) (providing relief in circuit court from erroneous
assessments).
10
2011 is the only tax year in dispute. See supra note 7.
4
III. Discussion
At the core of this appeal is the availability of an exemption from ad valorem
property taxation that is premised on the organization’s charitable purposes. After first
requiring that “taxation shall be equal and uniform throughout the State,” our constitution
further recognizes that “property used for educational, literary, scientific, religious or
charitable purposes . . . may by law be exempted from taxation.” W.Va. Const. art. X, § 1;
see In re Hillcrest Mem’l Gardens, Inc., 146 W.Va. 337, 341, 119 S.E.2d 753, 755 (1961)
(“Constitution . . . does not of itself exempt any property from taxation[;] it merely
authorizes legislative exemption thereof.’”) (quoting State v. Kittle, 87 W.Va. 526, 533, 105
S.E. 775, 777 (1921)).
Pursuant to authority reposed by article X, section 1, the Legislature enacted
West Virginia Code § 11-3-9 (2013) for the purpose of specifying which classifications of
property are exempt from taxation. The Hospital relies on two separate subsections of
section nine to assert its entitlement to exemption: subsections (a)(12) and (a)(17). Under
the more generic provisions of subsection 12, a tax exemption is extended in broad fashion
to all “[p]roperty used for charitable purposes and not held or leased out for profit.” W.Va.
Code § 11-3-9(a)(12). Under a more specific provision directed at hospitals, a tax
exemption exists for “[p]roperty belonging to . . . any hospital not held or leased out for
profit.” W.Va. Code § 11-3-9(a)(17). A qualification which applies solely to “educational,
5
literary, scientific, religious or other charitable corporations” seeking a tax exemption is that
“such property . . . [must be] used primarily and immediately for the purposes of the
corporations or organizations.” W.Va. Code § 11-3-9(d) (emphasis supplied).
In support of its position that the Hospital was not entitled to the subject tax
exemption for the 2011 tax year, the respondents focus primarily on the fact that as of July
1, 2010, the Bridgeport facility did not have its doors physically open to the public. As a
result, the respondents maintain that no charitable purpose was being achieved which would
permit a tax exemption. Upon a careful examination of the issues presented by this case, we
are compelled to conclude that the analytical approach taken by the respondents is unduly
narrow in scope. To suggest that the cynosure of demonstrating an organization’s charitable
purpose hinges on the swinging of its doors–especially in this day of voluminous regulations
which govern both qualification as a charitable organization and approval to construct and
operate a hospital facility–indicates a rather myopic view of the realities of both construction
and health care law. With full awareness of the regulatory complexity of modern corporate
existence, the determination of the Hospital’s entitlement to exemption from ad valorem
property tax requires a seemingly anachronistic examination of the historical basis of tax
exemptions in this state against the purposes which they continue to serve today.
6
A. Historical Recap of Tax Exemption
In State v. Kittle, 87 W.Va. 526, 105 S.E. 775 (1921), this Court was called
upon to decide whether a parsonage that was no longer occupied by a minister was entitled
to a tax exemption from ad valorem property taxes that applied then to “property used
exclusively for divine worship; parsonages, and the household goods and furniture
pertaining thereto.”11 Id. at 532, 105 S.E. at 777. Because the statutory language requiring
that such property must be used primarily and immediately for the use of the corporation or
organization was not then a part of our judicial or codified law,12 we do not rely on the
reasoning the Court employed to find that the parsonage property was tax exempt.13 See
11
The current version of the statutory exemption is framed separately in terms of
“[p]roperty used exclusively for divine worship” and “[p]arsonages and the household goods
and furniture pertaining thereto.” W.Va. Code § 11-3-9(a)(5), (6).
12
While not codified until 1945, this Court recognized in the syllabus of State ex rel.
Farr v. Martin, 105 W.Va. 600, 143 S.E. 356 (1928), that exemption from taxation required
usage that was “primary and immediate, not secondary or remote.”
13
In answering the pivotal question in Kittle of whether non-ministerial occupancy
transformed the status of the parsonage, this Court observed:
Acquisition and disposition of parsonages are necessarily
incident to the right to hold them and, while they are owned and
used as such, they are exempt. Unrestrained exemption of
parsonages clearly extends to property in course of preparation
for such use and to property in process of disposition, after
discontinuance thereof, or held in vacancy pending
determination as to its ultimate disposition. Exemption does not
. . . depend upon use of the property for parsonage purposes.
87 W.Va. at 533, 105 S.E. at 777.
7
W.Va. Code § 11-3-9(d). What we find instructive, however, is the general discussion
regarding our parent state’s liberal policy with respect to exemption. Looking to Virginia
law as a source of history, progress, and development with regard to tax exemptions we
observed the following:
No reason is perceived why the history and development
of the organic provision in question, as disclosed by previous
legislation in Virginia, the parent state, and provisions of its
constitutions, may not be considered upon this inquiry. . .
While, technically, constitutional provisions may not be acts in
pari materia, they are of the same nature as such acts. They
reveal the history, progress and development of the
constitutional provision and thus cast light on its true meaning.
. . . Hence we do not hesitate to resort to the Virginia statutes
and constitutional provisions relating to this subject.
Turning to them, we find the state’s policy respecting
exemption was liberal. . . .
Kittle, 87 W.Va. at 530-31, 105 S.E. at 776.
As we explained in Kittle, there was little “restraint upon legislative authority
to exempt property,” noting that a simple majority vote by each house of the general
assembly of Virginia was all that was necessary to create a tax exemption. Id. at 531, 105
S.E. at 776. In contrast or, more accurately, in direct response to what was viewed as
unfavorable tax treatment of western Virginia’s citizenry,14 this state’s first constitution
14
As one commentator has observed:
More than differences over slavery and possibly more than the
(continued...)
8
identified with specificity the permissible “subjects of legislative exemption.”15 Id. After
characterizing this state’s initial actions with regard to tax exemptions as “cutting down this
[formerly] unlimited power,” we observed that our founding fathers “used the most general
terms conceivable, in the enumeration of permissible subjects of exemption.” Kittle, 87
W.Va. at 532, 105 S.E. at 777. Those subjects denominated in this state’s first constitution
continue to comprise the scope of legislative exemption from ad valorem taxation.16
14
(...continued)
location of the Union and Confederate forces in 1862, the
rankling feeling that Virginia legislation and administration had
consistently given the western counties the short end of the stick
sparked the movement for separation. The reports of the
constitutional convention make it quite plain that, on this
specific matter of taxation, the feeling obtained generally that
the plenary legislative discretion had been so exercised as to
discriminate against western Virginia, inducing in the delegates
a purpose to restrict that discretion so as to preclude regional
favoritism in the new state. Accordingly the constitution
particularized the categories exemptable by specifying, after the
routine equality and uniformity clause, “but property used for
educational, literary, scientific, religious or charitable purposes,
and public property, may by law be exempted from taxation.”
Albert S. Abel, Public and Public Welfare Property Tax Exemption in West Virginia, 55
W.Va. L. Rev. 170, 172 (1953) (quoting W.Va. Const. art. VIII, § 1 (1863) and omitting
footnote).
15
The delineated subjects of tax exemption were educational, literary, scientific,
religious or charitable purposes, cemeteries, and public property. See W.Va. Const. art. VIII,
§ 1 (1863).
16
See supra note 15.
9
As we recognized in Reynolds Memorial Hospital v. Marshall County Court,
78 W.Va. 685, 90 S.E. 238 (1916), “[w]hether or not property may be exempted from
taxation . . . depends on the use to which it is applied.”17 Id. at 687, 90 S.E. at 239. The
nature of the property’s usage is critical, as we clarified in the syllabus of State ex rel. Farr
v. Martin, 105 W.Va. 600, 143 S.E. 356 (1928): “Under section 1, art. 10, Const., the
exemption of property from taxation depends on its use. To warrant such an exemption for
a purpose there stated, the use must be primary and immediate, not secondary or remote.”
At issue in Farr was whether income realized from a school’s lease of property held in trust
for it to third parties was tax exempt. Of significance to the Court was the fact that use of
the property directly benefitted the lien holders rather than the school.18 105 W.Va. at 602,
143 S.E. at 356. After observing that “[t]he statute excludes the exemption of property or
income which redounds to private profit,” the Court denied the exemption in Farr because
neither “the property or its income was used for educational purposes during that year.” Id.
In Central Realty Co. v. Martin, 126 W.Va. 915, 30 S.E.2d 720 (1944), we
addressed the effect that commercial use of property owned by a charitable organization had
on tax exemption. The property’s use by “four purely commercial enterprises operat[ing]
17
For purposes of entitlement to tax exemption, the use of a cemetery or public
property is immaterial. See Reynolds Mem’ Hosp., 78 W.Va. at 687, 90 S.E. at 239; W.Va.
Const. art. X, § 1.
18
The taxpayer admitted that none of the rental income was applied to the school for
the subject tax year.
10
for private profit” served to remove the subject property from the “letter or spirit of the
constitutional provision relating to the exemption of property from taxation.” Id. at 921, 30
S.E.2d 724. Attempting to distill the parameters of “immediate and primary use,” this Court
stated:
[W]here real estate is used solely by an organization for
educational and charitable purposes and such use is immediate
and primary the constitutional exemption from taxation applies,
and the statute enacted in pursuance thereof inhibits any
assessment for taxation; but real estate is not exempt where
owned by a like organization and is leased for private purposes,
notwithstanding the application of the income from rentals to
charitable and benevolent purposes and upkeep of the premises.
Id. at 923, 30 S.E.2d 725. Central Realty makes clear that the introduction of a profit-
making element, despite application of a portion of those profits to the upkeep of the
otherwise charitable property, fully extinguishes the constitutional basis for the exemption.
B. Modern Application of Tax Exemption
More recently, this Court examined the elements necessary for a charitable
organization’s entitlement to exemption from ad valorem property taxation in Wellsburg
Unity Apartments, Inc. v. County Commission of Brooke County, 202 W.Va. 283, 503
S.E.2d 851 (1998). After restating the use test announced in Reynolds Memorial Hospital
and later clarified in Central Realty, we declared as “indisputable” the precept “that property
used for charitable purposes which is not held or leased for profit is exempt from ad valorem
real property taxation.” Id. at 287, 503 S.E.2d at 855. In syllabus point three of Wellsburg,
11
we resolved that
[i]n order for real property to be exempt from ad valorem
property taxation, a two-prong test must be met: (1) the
corporation or other entity must be deemed to be a charitable
organization under 26 U.S.C. § 501(c)(3)19 or 501(c)(4) as is
provided in 110 C.S.R. § 3-19.1; and (2) the property must be
used exclusively for charitable purposes and must not be held
or leased out for profit as is provided in W. Va. Code § 11-3-9.
202 W.Va. at 284, 503 S.E.2d at 852 (footnote added).
Because there is no dispute as to the Hospital’s qualification as a charitable
organization pursuant to federal law, we proceed to examine whether the second prong of
the test adopted in Wellsburg has been established. This second prong derives from the
language of West Virginia Code § 11-3-9(a)(12), which extends tax exemption to “property
used for charitable purposes and not held or leased out for profit.” Just as there is no dispute
over the Hospital’s qualification as a charitable organization for purposes of federal tax law,
the respondents similarly do not raise an issue with regard to the subject property being
“held or leased out for profit.” W.Va. Code § 11-3-9(a)(12). The respondents’ sole focus
is whether the Bridgeport hospital facility was being used for charitable purposes on the
19
In syllabus point one of Wellsburg, we held that “[w]hen a corporation is granted a
tax exempt status under Section 501(c)(3) of the Internal Revenue Code of 1986, that
corporation is deemed to be a charitable organization under 110 C.S.R. § 3-19.1.” 202
W.Va. at 284, 503 S.E.2d at 852.
12
legal date of assessment.20
In deciding whether the subject property was being used for charitable
purposes in Wellsburg, we began our analysis with a review of what constitutes “charity”
for tax purposes. Pursuant to legislative regulation, “charity” is defined to include:
a gift to be applied consistently with the existing laws, for the
benefit of an indefinite number of persons, either by bringing
their 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. It is immaterial whether the
purpose is called charitable in the gift itself if it is so described
as to show that it is charitable. Any gift not inconsistent with
existing laws which is promotive of science or tends to the
education, enlightenment, benefit or amelioration of the
condition of mankind or the diffusion of useful knowledge, or
is for the public convenience is a charity.
202 W.Va. at 287, 503 S.E.2d at 855 (quoting 110 C.S.R. § 3-2.10 (1989)). An additional
regulation, directed specifically at property used for charitable purposes, provides that:
[c]harities must be operated on a not-for-profit basis, must
directly benefit society, must be for the benefit of an indefinite
number of people, and must be exempt from federal income
taxes under 26 U.S.C. § 501(c)(3) or 501(c)(4). Morever, in
order for the property to be exempt, the primary and immediate
use of the property must be for one or more exempt purposes.
110 C.S.R. § 3-19.1 (1989).
20
The respondents recognize that charitable purposes were being met as of October
3, 2010, when the hospital doors were open to the public. See supra note 7.
13
Applying those regulatory definitions to the facts in Wellsburg–a charitable
organization that provided housing for the elderly or low income individuals–this Court
affirmed the trial court’s finding that the property was used for charitable purposes as it was
“being used for purposes of relieving poverty and for other purposes which are beneficial
to the community.” 202 W.Va. at 289, 503 S.E.2d at 857. In similar fashion, we concluded
in Appalachian Emergency Medical Services, Inc. v. State Tax Commissioner, 218 W.Va.
550, 625 S.E.2d 312 (2005), that leased property owned by a non-profit charitable
corporation came within the definition of “charity” because the property was being used to
further the corporate mission of assisting emergency services organizations to relieve human
suffering. Id. at 555, 625 S.E.2d at 317.
Admittedly, neither Wellsburg nor Appalachian Emergency involved the exact
issue presented here: whether a newly constructed hospital can serve its charitable purposes
before John Q. Public walks through the door. In support of their position, the respondents
look to two additional regulations that apply solely to hospitals to reach their conclusion that
charitable purposes were not being met on the assessment date of July 1, 2010. Pursuant to
110 C.S.R. § 3-24.17.1 (1989), “[w]hen a hospital purchases land which it intends to use for
capital improvements, which will be used for charitable purposes, the land shall not be
exempt so long as the land is vacant.” In explanation of this disallowance, the regulation
provides “[s]o long as the land is vacant, it can be sold and used for noncharitable
14
purposes.” Id. By regulation, land on which construction has begun for hospital purposes
falls within the scope of permissible tax exemption when “it has been put to such actual use
as to make the primary and immediate use of the property charitable in accordance with
Section 19 of these regulations.” 10 C.S.R. § 3-24.17.3 (emphasis supplied).
The respondents have seized upon the emphasized language in the above-
quoted regulation to argue that “immediate” necessarily indicates a sense of time and that
“actual use” means the equivalent of occupancy. Based upon our exacting inquiry of the
historical basis for and development of the subject tax exemption, we are convinced that the
respondents have incorrectly interpreted the subject terminology. Their contention that
“immediate” was intended to describe a contemporaneous physical usage is wholly at odds
with how that term has been employed over the years. Rather than serving as a modifier
couched in temporal terms, its syntactic function has always been used to indicate directness.
This comports with the primary definition of “immediate” provided by the dictionary, which
is “acting or being without the intervention of another object, cause, or agency: DIRECT.”
Merriam Webster’s Collegiate Dictionary, p. 579 (10th ed. 1994). Significantly, when the
phrase “primary and immediate” first appeared on our judicial landscape with regard to ad
valorem taxation, it was followed by the explanatory phrase “not secondary or remote.” See
Syllabus, Farr, 105 W.Va. at 600, 143 S.E. at 356. Given this seminal judicial explanation
that the meaning of “primary and immediate” usage stands in contrast to “secondary or
15
remote” usage combined with the fact that “direct” is a long-recognized synonym for the
term “immediate,” we conclude that the term “immediate” was not intended to connote a
temporal requirement when conjoined to “primary” for tax exemption purposes. See id.
We proceed to address the respondents’ claim that the regulatory inclusion of
the phrase “actual use” fully resolves the question of the Hospital’s entitlement to a tax
exemption. The respondents argue that the non-use of the Hospital for patient-treating
purposes on July 1, 2010, necessarily prohibits the Bridgeport facility from qualifying as
charitable on such date. The context in which “actual use” is employed in 110 C.S.R. § 3
24.17.3 is tied to “mak[ing] the primary and immediate use of the property charitable within
the meaning of section 19 of the regulations.”21 While the respondents do not take issue
with the Hospital’s qualification as a charitable organization under federal law or its
operation on a non-profit basis, they do contend that it was not serving charitable purposes
on July 1, 2010, as they maintain that it could neither directly benefit society nor benefit an
21
Section 19.1, the foundational regulation of this section, provides as follows:
Charities must be operated on a not-for-profit basis, must
directly benefit society, must be for the benefit of an indefinite
number of people, and must be exempt from federal income
taxes under 26 U.S.C. § 501(c)(3) or 501(c)(4). Moreover, in
order for the property to be exempt, the primary and immediate
use of the property must be for one or more exempt purposes.
110 C.S.R. § 110-3-19.1.
16
indirect number of people with its doors closed to the public.22 We disagree.
Because the Hospital had relocated its IT department prior to July 1, 2010, to
the Bridgeport facility and because that department was fully engaged in providing
technology support services necessary to keep the Clarksburg hospital operating until the
Hospital was able to fully complete its move to the new facilities, the IT employees were
utilizing the physical premises of the Bridgeport facility to accomplish the undisputed
charitable purposes of the Hospital.23 In this day and age, the integral nature of an
organization’s IT department cannot be seriously debated. Without the IT department and
its attendant corporate ability to enable the myriad uses of technology required in a modern
hospital, a healthcare facility would be incapable of retrieving patient information; meeting
the pharmaceutical needs of those patients; processing insurance and payment information;
conducting research; operating its security systems; communicating interdepartmentally; and
completing innumerable additional functions necessary to meet the quotidian needs of both
staff and patients. In addition to the IT department and its employees, the Hospital had
housekeeping employees working to prepare the facilities for the imminent arrival of
patients; security employees who were actively guarding the premises; and environmental
employees in charge of overseeing the climate needs of the facility. All of these employees
22
See supra note 21.
23
The fact that the healthcare services were being provided at the Clarksburg property
does not negate the physical use of the Bridgeport property to meet the Hospital’s IT needs.
17
who were physically present at the Bridgeport facility were either directly contributing to the
provision of charitable purposes that were taking place at another location or they were
readying the Bridgeport premises for the facility’s forthcoming admission of patients.24
Upon analysis, we are simply not persuaded by the respondents’ contention that
on-site physical provision of charitable healthcare is the only means by which the Hospital
can demonstrate the requisite “actual use” of the Bridgeport property for charitable purposes.
While the respondents wish to view the Hospital’s entitlement to an ad valorem tax
exemption solely under the regulations that pertain to hospitals, section nineteen of the
subject regulation makes clear that the use of the property “must be for one or more exempt
purposes.” 110 C.S.R. § 110-3-19.1. In short, if the Hospital qualifies under the more
general purpose of simply using its property for charitable purposes and not being held or
leased out for profit, that is sufficient. See W.Va. Code § 11-3-9(a)(12); Reynolds Mem’l
Hosp., 78 W.Va. at 687, 90 S.E. at 239 (“If the property is used for charitable purposes
24
Due to the physical use of the subject property for work that qualifies as integral to
the provision of charitable healthcare services, we find it unnecessary to decide whether the
construction process itself can be viewed as a necessary part of an organization’s provision
of charitable services. We note, however, that other courts have ruled accordingly. See, e.g.,
Abbott Ambulance, Inc. v. Leggett, 926 S.W.2d 92, 95 (Mo. App. 1996) (stating that “use of
the property in constructing the facility as a prerequisite to such [charitable] use should
likewise be considered a charitable use”); Overmont Corp. v. Board of Tax Revision, 388
A.2d 311, 312 (1978) (ruling that construction of facilities by charity constitutes use for
purposes of tax exemption and observing that “[t]o hold otherwise would tend to impede the
purposes for which the tax exemption was created”).
18
within the meaning of the Constitution, then it is exempt from taxation; if it is not so used
it is not exempt”); accord State ex rel. Cook v. Rose, 171 W.Va. 392, 394, 299 S.E.2d 3, 5
(1982) (“Therefore, a hospital may only be entitled to a property tax exemption for property
not held or leased out for profit and used solely for charitable purposes.”). Rather than its
operation as a hospital per se, it is the dispensation of charity that determines the Hospital’s
entitlement to an exemption in this case.
Our conclusion on this issue is further buttressed by an examination of the
objective underlying the regulation upon which the respondents rely. In withholding a tax
exemption for property purchased by a hospital intended for construction until there is a
clear indication that charitable purposes will be accomplished on such property, the
Legislature stated its valid concern that the vacant property might be sold and used for
noncharitable purposes. See 110 C.S.R. § 3-24.17.1. As of July 1, 2010, with construction
of the Bridgeport hospital facility 95% complete and multiple departments already located
and operating on site, the possibility that the Hospital would seek to sell this property to a
profit-seeking entity had long since passed. Consequently, we think it somewhat
disingenuous of the respondents to rely upon a regulation aimed at securing the extension
of tax exemptions to property with indisputable indicia of charitable purpose usage. On the
assessment date, it strains credulity to suggest that any doubt remained regarding the use of
the Bridgeport property for charitable purposes. And, as discussed above, the property was
19
in fact currently being used to accomplish charitable purposes–albeit at another location.
What has always been pivotal in any determination regarding entitlement to tax
exemption is the absence of profit making combined with the concurrent incident of public
beneficence. In exchange for the indisputable benefits to society, which typically have a
consequent reduction in governmental burdens, a tax exemption is extended to the charitable
provider. See Bethesda Gen’l Hosp. v. State Tax Comm’n, 396 S.W.2d 631, 633-34 (Mo.
1965) (recognizing that charitable exemptions are given in return for performance of
functions which benefit public, and consequently relieve state’s burden to care for and
advance interests of its citizenry); Abel, supra, 55 W.Va. L. Rev. at 188 (stating that rationale
of extending tax exemption for charitable purposes “is a reciprocal of benefit conferred on
the people of the state by the exemption beneficiary”). The respondents do not challenge the
benefits that the Hospital confers on this state’s citizens through its now fully-operational
Bridgeport facility. Instead, they seek to benefit from the construction-related delays over
which the Hospital appears to have had little control.25 Not only do we find their approach
unduly restrictive, but we have little doubt that it is not in keeping with what this state’s
constitutional framers intended.
While the respondents seek to offensively apply the rule of strict construction
25
See supra note 2.
20
with regard to the extension of tax exemptions,26 they overlook the corollary requirement
that such construction must be rational. Patterson Mem’l Fund v. James, 120 W.Va. 155,
157, 197 S.E. 302, 303 (1938) (“While judicial construction of tax exemptions should be
strict, it should be rational.”) (overruled on other grounds as stated in Central Realty, see
Syl. Pt. 3, 126 W.Va. 915, 30 S.E.2d 720). As we held in syllabus point three of Kittle, “[a]
constitutional provision authorizing legislative exemption of property from taxation is
strictly construed and nothing can be exempted that does not fall within its terms; but
rational construction within the terms used is required as well as permitted.” 87 W.Va. 526,
105 S.E. 775. This Court provided additional enlightenment, stating in Kittle:
The only arbitrary requirement of the rule of strict
construction, however, is that its subject matter must be within
the terms, as well as the spirit, of the provision under
construction. It does not require assignment to terms actually
used, of the most restricted meaning of which they are
susceptible, nor any particular meaning. So long as the court
stays within the terms used, it may give effect to the spirit,
purpose, and intent of the makers of the instrument. The rule
permits, and other law requires, rational interpretation within
the terms actually used.
87 W.Va. at 529-30, 105 S.E. at 776; see also Mountain View Cemetery Co. v. Massey, 109
W.Va. 473, 477, 155 S.E. 547, 549 (1930) (observing that “a strict construction must be
26
“Constitutional and statutory provisions exempting property from taxation are
strictly construed. It is incumbent upon a person who claims his property is exempt from
taxation to show that such property clearly falls within the terms of the exemption; and if any
doubt arises as to the exemption, that doubt must be resolved against the one claiming it.”
Syl. Pt. 2, Hillcrest Mem’l Gardens, 146 W.Va. at 337, 119 S.E.2d at 754.
21
reasonable and not limited so as to defeat the underlying purpose of the statute”); accord
Trotter v. Tennessee, 290 U.S. 354, 356 (1933) (recognizing that tax exemptions “are not
to be read so grudgingly as to thwart the purpose of the lawmakers”).
Our review of this state’s tax exemption laws reveals that the overarching
concern in looking to a property’s usage was to ensure that such usage properly fell within
the scope of the state’s enumerated subjects entitled to tax exemption. See W.Va. Const. art.
X, § 1. Given the inarguable benefits that inure to society from the provision of charitable
services, such as those provided by the Hospital, we find it doubtful that the constitutional
framers sought to deny tax exemption where such laudable eleemosynary purposes are being
achieved.27 See Prichard v. County Court of Kanawha County, 109 W.Va. 479, 486, 155
S.E. 542, 545 (1930) (observing that “it is the purpose of our state under its tax laws to deal
liberally with and foster and encourage all charitable and educational institutions when their
conduct and operation does not result in private gain”) (overruled on other grounds as stated
27
The Hospital observes that if it is required to pay ad valorem property taxes on the
Bridgeport property for tax year 2010, there will be a consequent reduction in funds available
to meet its charitable purposes. See Abbott Ambulance, 926 S.W.2d at 97 (observing that
“[d]enial of an exemption during construction of a facility which is to be used for an
unquestionably charitable activity necessarily increases the cost, thereby diminishing the
charity’s ability to carry out its activities for the benefit of the public”). We note that the
Hospital, in keeping with our state regulations, did pay ad valorem taxes on the Bridgeport
property from the time of the property’s purchase in 2006 through 2010. See 110 C.S.R. §
3-24.17.1. At such time, the property had not yet begun to be used for charitable purposes.
Id. at § 3-24.17.3.
22
in Central Realty, see Syl. Pt. 3, 126 W.Va. 915, 30 S.E.2d 720). Rather than a “gotcha”
type of calendar-focused interpretation, we are convinced that a rational construction of the
tax exemption extended by West Virginia Code § 11-3-9(a)(12) is required by the facts of
this case. And by applying that type of a construction, we are compelled to conclude that
charitable purposes were unquestionably being achieved by the Hospital on the legal date
of assessment. Accordingly, we hold that a healthcare corporation, qualified as a charitable
organization under federal law, whose construction of a replacement hospital facility is
substantially complete on the legal date of assessment and who has significant departmental
staff on site working to fulfill the organization’s charitable purposes, comes within the spirit,
purpose, and intent of the constitutional framers for purposes of entitlement to exemption
from ad valorem property taxation pursuant to West Virginia Code § 11-3-9(a)(12).
IV. Conclusion
Based on the foregoing, the decision of the Circuit Court of Harrison County
is reversed.
Reversed.
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