Cedars of Lebanon Hospital v. County of Los Angeles

SHENK, J., Concurring and Dissenting.

I concur in the opinion and judgment as to the Los Angeles County Flood Control District tax; and as to the general tax insofar as the result is tax exemption. But I am not in agreement with those portions of the opinion which lead to nonexemption from the general tax. In the latter are included the thrift shop and the buildings under construction. In my opinion the proper application of the law should result in tax exemption of these items from the general tax.

The rule of construction to discover a tax exemption applies only until the meaning of the language makes it clear that an exemption was expressed. When that meaning is found in the language employed the rule is of no further use. Since the electorate and the Legislature used express words of exemption (Const., art. XIII, § le; Rev. & Tax. Code, § 214), there is here no need for the rule of construction to discover whether an exemption was intended. The task from that point is to apply the express language of exemption in accordance with the intent appearing from the constitutional and statutory provisions and other relevant factors.

It is obvious that the welfare exemption is designed to serve both social and economic ends. The electors of the state must be deemed to have been aware of the need of the services *751 afforded by the designated organizations when carried on impartially and without self-interest. Implicit in the legislation is the knowledge that the maintenance of the facilities and the dispensation of the services as a result of private contributions of funds and personal effort become less of a burden on the taxpaying public than would be the cost under public ownership and control. The lessened cost of operation by the relief from taxation of such organizations also renders the services more widely available to those for whom they are intended. The resulting cost reduction must have been considered a greater benefit to the people than decreased taxes if the properties were not exempt.

As the majority opinion points out, many operations involved are incidental to a hospital use but are important and necessary to the conduct of each organization and without which its function as a hospital would be severely handicapped. Considering the social and economic ends to be served, the governing policy should be to so apply the express exemption as to bring about fully the legislative objectives. To do so requires that the words “use” and “purposes” be given their separate meanings. The exemption could have been afforded only when the property was devoted solely to a hospital use. But the wider compass in the expression of use for hospital piirposes should include every purpose deemed essential to operation as a hospital. In this aspect the determination of necessity by the owners and operators should be given proper weight. Therefore, although a property might not be devoted to a hospital use, if it is essential for a hospital or other exempt purpose as distinguished from a use foreign to such purpose, it should be considered to be used exclusively for the exempt purpose within the meaning of the constitutional and legislative provisions. The majority opinion appropriately includes within the use for hospital purposes a training school for nurses, residence facilities for nurses, doctors and employees, and health and recreational facilities. But there has been omitted the thrift shop conducted by one of the hospitals and the buildings under construction intended for use as housing for student nurses attending the school of nursing.

The “Thrift Shop”

The so-called “thrift shop” is located in a portion of a hospital building otherwise exempt. Here donations of personal property are received and where not usable as donated *752 they are converted into cash and used on behalf of the Free Children’s Clinic maintained jointly by the hospital and the Los Angeles Community Chest. Nothing is purchased for resale. It is not a commercial enterprise, and there is no true profit-making objective involved. These charitable activities are common and are plainly distinguishable on the facts from Cypress Lawn Cemetery Association v. San Francisco, 211 Cal. 387 [ 295 P. 813 ], There property of the plaintiff 1 ‘ except as used or held for profit” was tax exempt. A hotel, the proceeds from the operation of which were devoted to the upkeep of the cemetery property, was owned and operated by the plaintiff. It was decided that the hotel property was not exempt from taxation. The case suggests a fair test of when property is used or operated for profit “regardless of the purposes to which the profit is devoted” under the statute here involved. If, as in the cemetery case, the property is held primarily as investment property to derive a profit and has no connection with the hospital or charitable use, it is not used for hospital or charitable purposes although the profit therefrom is applied to maintain the facilities devoted to those purposes. It was such investment property as was intended to be omitted from the exemption provisions. The Legislature no doubt considered the possibility that, in the absence of language of express exclusion, the courts might conclude that investment property was exempted when all the proceeds from its operation were devoted to the hospital or other designated purpose. But the thrift shop is not held as investment property nor is it pursued as a commercial venture. There is here a direct connection with the charitable purpose of receiving contributions for distribution in the same or converted form to the children applying for free assistance at the clinic. (Cf. Missouri Goodwill Industries v. Gruner, 357 Mo. 647 [ 210 S.W.2d 38 ].) Every case obviously must be determined on its own facts. And in this instance it seems to me that the alleged charitable use of the property far outweighs any possible attribute of commerce for the reason that contributions are necessarily converted to usable liquid assets in their charitable application. Here the result should be the same as though money contributions had been offered and accepted in the first instance.

Buildings Under Construction

As to the lots and the buildings thereon under construction for use as student nurse housing it is necessary to consider *753 whether during construction they were “property used exclusively for . . . hospital purposes. ’ ’ I do not agree with the conclusion that the question has been determined in this state adversely to the claim of exemption by the case of Southern California Telephone Co. v. Los Angeles County, 212 Cal. 121 [ 298 P. 9 ]. There was no question of exemption from taxation in that case. The court pointed out that public utilities were not exempt from property taxes. If the property in question was “operative” property, it fell under the substituted state tax on gross receipts. If nonoperative it was subject to taxation by the county. It was decided that the property was nonoperative and therefore taxable by the county. The conclusion has no bearing on the present question of the application of provisions for tax exemption. In arriving at the holding that the exemption does not apply to property under construction it is conceded that there are eases to the contrary. The reasoning of those cases to me is persuasive. In the application of such exemptions, construction for a proper hospital purpose is a use for such purpose. Expansion is necessary to keep abreast of increased public need due to population and other changes. Under modern conditions, neither a hospital nor any other welfare service can remain static. If the trust funds, contributions and earnings are tax exempt, no good reason requires a denial of exemption because of the temporary use of the assets to construction purposes, where the property in its converted state is also exempt. In El Jebel Shrine Assn. v. McGlone, 93 Colo. 334 [ 26 P.2d 108 ], the constitution and statute exempted lots and buildings thereon if used solely and exclusively for religious or charitable purposes. It was held that a lot with the foundation thereon for a building to be used for charitable purposes was exempt. Among other cases the court followed New England Hospital v. Boston, 113 Mass. 518 . There vacant lots were held exempt where construction plans were diligently being pursued in good faith. (See to similar effect McGlone v. First Baptist Church of Denver, 97 Colo. 427 [ 50 P.2d 547 ]; Trinity Church v. Boston, 118 Mass. 164, 166 .) In a case holding to the contrary (Boston Soc. v. Boston, 129 Mass. 178 ), vacant land was held taxable because the only intent appearing was that at some indefinite time in the future it was to be improved for the required purpose. In re Miriam Oshorn Memorial Home Assn., 140 N.Y.S. 786 , also involved real property not yet in actual use but suitable buildings were in *754 good faith contemplated, plans discussed, and funds in existence for the purpose. Since the property was shown to be essential to the comprehensive plan of development for charitable purposes, it was held to be exempt. In re Children’s Hospital (1923), 82 Pa.Super. 196 , the exemption statute provided that the entire revenue of the charity should be used among other things for the necessary increase of grounds and buildings thereon. It was held that an addition in the course of construction was exempt. Dougherty v. Philadelphia (1934), 112 Pa.Super. 570 [ 172 A. 177 ], involved two properties, neither of which was in actual use. One school building was being demolished, while the replacement building was still under construction. The exemption was applied to the former. The court held the property entitled to one exemption. Neither property was then in condition for actual use, but the exemption was nevertheless applied.

The statement in 26 Ruling Case Law, Taxation, section 283, was accepted as the general rule in Trustees of Property of Protestant Episcopal Church in New Mexico v. State Tax Comm., 39 N.M. 419 [ 48 P.2d 786 ], namely: “When a religious society has bought a lot for the purpose of erecting a church thereon, and has begun and is prosecuting with all reasonable diligence the erection of the building, the lot is generally held to be exempt from taxation.” (See also Osteopathic Hospital of Maine v. Portland, 139 Me. 24 [ 26 A.2d 641, 644 ]; Foresee v. Board of Directors of Bergman Special School Dist. (1948), 213 Ark. 569 [ 211 S.W.2d 432 ]; State v. Second Church of Christ, Scientist, 185 Minn. 242 [ 240 N.W. 532 ]; Village of Hibbing v. Commissioner of Taxation (1944), 217 Minn. 528 [ 14 N.W.2d 923 , 156 A.L.R. 1294 ]; Commonwealth v. First Christian Church of Louisville, 169 Ky. 410 [ 183 S.W. 943 , Ann.Cas. 1918B 525].)

It is no answer to say that in such cases the policy was one of liberal construction. Under the “strict but reasonable” formula announced the result should be the same. When an exemption appears under that rule of construction, the “reasonable” application of the exemption language in my opinion requires a result in conformity with the general rule accepted in the foregoing cases.