Decision for Plaintiffs rendered August 30, 2013.
This case comes before the court for decision following a trial in the Regular Division. Plaintiffs Serenity Lane,
This Opinion should be read in context with this court's Opinion in Hazelden Foundation v. Yamhill County Assessor, 21 OTR 245 (2013).
Serenity operates addiction treatment programs throughout this state. Serenity's operational hub is located in central Eugene, between the downtown commercial district and the campus of the University of Oregon. The physical plant of Serenity's central Eugene location has expanded over time, and by the tax year at issue had come to occupy substantially all of one full city block and parts of an adjacent block. At the time of trial Serenity had plans in the future to sell this facility and to construct a new, larger facility in the nearby town of Coburg.
Serenity is composed of two separate legal entities, SLI and SLHS. Both entities are organized as IRC section 501(c)(3) nonprofit corporations.
Serenity's primary use for its real property in central Eugene during the tax year at issue was to operate an inpatient residential addiction treatment facility. Serenity's facility was licensed as a specialty hospital and employed a medical staff of physicians and nurses in addition to counselors trained in treating substance addiction.
Serenity offers inpatient residential treatment and detoxification (detox) at its central Eugene location. Serenity's staff are equipped for "uncomplicated detox." The court understands that term to mean medically managed detox of an individual, without the need to simultaneously treat other acute medical conditions that are independent of the patient's addiction. Most of Serenity's patients undergo detox as a preliminary step in either inpatient residential treatment or intensive outpatient treatment, but the testimony at trial indicated that detox is a separate service that is billed at a different rate by service providers and reimbursed at different rates by the Centers for Medicare and Medicaid Services (CMS) and other insurance providers.
Serenity also offers outpatient treatment. Outpatient treatment takes two forms: intensive outpatient treatment and nonintensive outpatient treatment. Intensive outpatient treatment requires a relatively substantial time commitment from patients over a span of several weeks and seeks to produce many of the salutary effects of inpatient residential treatment, while still allowing patients to accommodate work schedules and avoiding some of the costs associated with housing and feeding inpatient residential patients. Serenity offers intensive outpatient treatment as a lower cost alternative to inpatient residential treatment and uses intensive outpatient treatment as the principal treatment option for the indigent and low-income patients served through Serenity's "New Hope" program. Serenity offers nonintensive outpatient treatment primarily in the form of
Serenity's "New Hope" program exists to offer treatment options for indigent and low-income individuals. It is housed out of a facility separate from Serenity's downtown residential treatment facility. The testimony at trial was to the effect that Serenity typically serves patients who have insurance through the Oregon Health Plan through the New Hope program, but also looks for other signs of acute financial distress, such as reliance on food stamps. While neither party has given precise figures for the number of patients treated through the New Hope program during the 2009-10 and 2010-11 tax years, the record indicates that during Serenity's 2009 and 2010 fiscal years, Serenity treated 137 patients with insurance coverage through the Oregon Health Plan.
In addition to its treatment of individuals suffering from substance addiction, Serenity also sponsors an internship program to train aspiring addiction counselors. Serenity hosts ten interns per year in a program aimed at achieving the training necessary for certification as a Certified Alcohol and Drug Counselor (CADC). The interns do not pay for this training, and are given a stipend to help defray living expenses while involved with the program. Interns obtain hands-on experience counseling Serenity's patients under the supervision of Serenity's CADCs in the internship program and in many instances Serenity has hired former interns to work as CADCs after completing the program. The testimony at
Prior to the 2010-11 tax year, the county considered SLI and SLHS charitable institutions exempt from ad valorem property tax under ORS 307.130. In March of 2010, the county began a review of the exempt status of both entities and requested documents from Serenity substantiating their charitable nature. Serenity complied with this request, but the response failed to satisfy the county. Following a further exchange of letters, the county removed the exemptions of both SLI and SLHS. Serenity then appealed that decision of the county to the Magistrate Division. The magistrate found for the county, and Serenity appealed to this division of the court.
Whether Serenity's operations involve the "gift or giving" required for exemption from property tax as charitable institutions.
As an initial matter, the court will address the statutes that the court must consider in analyzing this case. ORS 307.130(2) provides:
ORS 307.166(1) provides the way forward. The relevant text of ORS 307.166(1) provides:
Phrased differently, if an institution that is entitled to claim exemption from property tax under a provision of ORS chapter 307 leases its property to another institution that is also entitled to claim exemption from property tax for property that it owns, then the property remains exempt from property tax as long as the lessee institution uses the property in the manner required under the statute that would entitle that lessee institution to claim exemption for the property if it owned the property.
The result is that, because of Serenity's internal organization, each of the two components of Serenity must individually qualify as charitable institutions to satisfy the terms of ORS 307.166. The saving grace is that in the past this court has concluded, when presented with analogous separations of administrative functions from the substantive work of a charitable institution, that property devoted to the administrative functions of an otherwise charitable
When determining whether an allegedly charitable institution meets the requirements of ORS 307.130, Oregon courts look to whether the institution meets three requirements:
SW Oregon Pub. Def. Services v. Dept. of Rev., 312 Or. 82, 89, 812 P.2d 1292 (1991). The parties are in agreement that Serenity meets the first two of these requirements. More specifically, the county agrees that Serenity's sole purpose is to operate addiction treatment programs on a not-for-profit basis and does not dispute that Serenity does, indeed, operate such programs without an eye to personal gain or profit for the individuals that own or control Serenity. As often happens in cases such as this one, however, the parties are in disagreement as to whether Serenity has shown that its operations involve the element of "gift or giving" required of a charitable institution under ORS 307.130.
SW Oregon Pub. Def. Services, 312 Or at 87 (quoting Oregon Administrative Rule (OAR) 150-307.130-A(4)(d)(C)). Serenity argues that its operations involve several different types of "gift or giving." Serenity's alleged "gift or giving" takes the following forms:
In the following analysis, the court will discuss whether the forms of gift or giving that Serenity alleges satisfy the "gift or giving" requirement. In so doing the court will first analyze Serenity's alleged giving in light of the four "gift or giving" factors laid out above. To the extent that any form of giving alleged by Serenity does not neatly interact with the four "gift or giving" factors, the court will consider it on its own terms. Serenity must prove the presence of "gift or giving" in its operations by a preponderance of the evidence. ORS 305.427.
With regard to the first "gift or giving factor," SLHS and SLI are both organized as not-for-profit corporations under IRC section 501(c)(3). Serenity and the county appear to be in agreement that with the exception of a cash reserve necessary for operations, Serenity reinvested the excess of its revenues over its expenses into expanding its operations. Serenity's past expansions of its original facility in central Eugene and current plans to expand its operations by constructing a new facility in Coburg is probative of this issue. The county does not allege that Serenity's revenues inured to the benefit of any private individual, other than to the extent that Serenity's employees are, of course, paid for their services.
With regard to the second "gift or giving" factor, the record is harder to conclusively assess. Serenity orients its inpatient residential treatment program toward working and middle class individuals. Serenity offers treatment options for the indigent and for individuals on the Oregon Health Plan, but does not typically admit such individuals to inpatient residential treatment. At first glance, this would appear to weigh against Serenity. However, in his testimony, Serenity's CEO offered what the court considers valid therapeutic reasons for keeping its indigent patients separate from its inpatient residential patients. Serenity's CEO testified to the effect that Serenity treats its indigent
With regard to the third factor, the county does not allege discrimination on the basis of race, skin color, or religious convictions, and the record contains no evidence of such discrimination. The court also concludes that Serenity's doors were open to rich and poor alike. While Serenity's evident disinclination to take on indigent patients on the same basis as it took on other patients weighs against it on the second of the "gift or giving" factors, Serenity's undertaking to provide outpatient treatment for indigent patients through its "New Hope" program clearly evidences a desire to provide treatment options for the indigent and poor, albeit in a setting separate from its main treatment facility. Serenity's acceptance of patients on Medicaid and providing detox services to patients on the Oregon Health Plan further evidences a positive desire to make its services widely available to the poor, as well as to the relatively affluent patients that made up the bulk of Serenity's inpatient residential patient population.
The record on the fourth factor is mixed but likewise weighs overall in favor of a finding of the presence of "gift or giving." Serenity's CEO testified to the effect that Serenity does have a system of "scholarship" giving — in other words, Serenity gave need-based discounts on the cost of care for patients with limited financial assets. However, Serenity's CEO also testified that Serenity only rarely gave care at no charge whatsoever. Serenity's CEO claimed that there was a legitimate therapeutic reason for this insistence on its patients paying Serenity something for treatment, in that it gave its patients a feeling that they had an investment in their recovery from addiction. This claimed motivation has
Two factors limit the amount of weight the court can give to the existence of Serenity's scholarship program and willingness to take token payments from indigent patients. First, in the case of indigent patients making token payments it was not clear from the record whether such patients would have the same treatment options as patients that were better able to pay for treatment. The record contains an account of at least one patient admitted to Serenity's inpatient residential facility, and subsequently to the EXSL program, but the testimony at trial suggests that this was a rare case.
Second, the record does not contain any information regarding the criteria Serenity uses to qualify patients for scholarships or to calibrate the amount of the discount appropriate for any given patient. This court discussed in Hazelden Foundation v. Yamhill County Assessor, 21 OTR 245 (2013), how the third and fourth "gift or giving" factors are very closely interrelated. While the existence of a need-based sliding scale of fees for treatment weighs, at the margins, in favor of a finding of the presence of "gift or giving," the contours of the sliding scale are extremely probative of whether the doors of an institution are truly open to "rich and poor alike." If, as a practical matter, the poor and the indigent are still generally unable to access the services of an institution despite the existence of a need-based sliding scale of fees, then the institution may well be admirable, but it is not charitable.
The actual dollar amounts of charitable giving during the 2010 and 2011 tax years are in the record, and they are not insubstantial; they amount to roughly 2.3 percent of Serenity's overall revenues during each of those calendar years. Nonetheless, in the absence of evidence tending to show Serenity's guidelines for distributing their scholarship money, the court cannot say any more than that the evidence in the record relating to the fourth gift or giving
The court's analysis of the four traditional "gift or giving" factors leans somewhat in the direction of concluding that "gift or giving" is present in Serenity's operations. The court finds particularly probative the substantial evidence in the record before the court of Serenity's intent to make its services widely available to poor and indigent individuals, as well as to those more readily able to pay for treatment. This conclusion is tempered, however, by Serenity's general policy of not admitting indigent patients to its inpatient residential treatment facility and the lack of evidence in the record before the court detailing the contours of Serenity's scholarship program. However, on the whole the analysis supports a finding of the presence of "gift or giving."
In addition to the forms of giving discussed above, Serenity alleges three forms of giving that do not mesh neatly with the four "gift or giving" factors discussed above. These supposed forms of giving are Serenity's alleged provision of treatment at below-market rates, Serenity's internship program for aspiring CADCs, and Serenity's educational outreach to employers.
The administrative rules of the Department of Revenue implementing ORS 307.130 recognize that the "gift or giving" requirement may be met by providing products or services to those in need at below-market rates. OAR 150-307.130-(A)(1)(d). At trial, Serenity provided extensive testimony and a report by a professional economist purporting to show that Serenity provides treatment to patients at a cost well below the market rate.
The gist of Serenity's expert report and testimony was that Serenity most likely charges at or modestly below the market rate for residential and intensive outpatient treatment. At the same time, however, the expert's report tends to show that Serenity charges substantially below the market rate for two specific types of treatment: detox and recovery support counseling for patients who have completed a course of residential or outpatient treatment. The
Serenity's expert sought to establish that Serenity offers detox at below-market rates by comparing the cost of detox for patients of Serenity to the rates other hospitals in this state charge for "uncomplicated detox." The results of this comparison approach support a conclusion that Serenity did provide uncomplicated detox at rates far below what the market would bear for such treatment. In addition, while Serenity's expert discussed this subject in a different section of his report, the record further indicates that Serenity provides detox treatment to individuals on the Oregon Health Plan at a cost significantly reduced from Serenity's normal charges for detox — charges that, as noted above, already appear to be below the market rate.
The county did not place in the record any evidence tending to contradict the conclusions of Serenity's expert. Rather, the county relies entirely on objections to Serenity's expert report. The county objects to Serenity's expert analysis regarding detox for two reasons: first, the county argues that the uncomplicated detox services provided by Serenity and those provided by full-service hospitals are not comparable because full-service hospitals have the capacity to provide extensive medical treatment in addition to detox. Second, the county argues that these services are not comparable because Serenity primarily provides detox treatment to patients as a preliminary step in residential treatment — a service that full-service hospitals do not typically provide.
The county's sole reliance on such objections reflects the county's failure to develop a record on this issue. The county provided two witnesses to rebut Serenity's expert witness report and testimony. However, the first of these witnesses confined his testimony to criticizing the approach taken by Serenity's expert. The county failed to qualify its second witness as an expert in the market for addiction treatment services and, as a consequence of this failure, the court had no choice but to treat this witness' testimony as hearsay not subject to any exception to the bar on hearsay evidence. In short, the county was unable to present any
The record before the court with regard to whether Serenity offers detox to its patients at below-market rates consists, in its entirety, of a expert report tending to show that Serenity does, indeed, offer detox at below-market rates. Serenity has carried the burden of proof on this issue.
For the same reason, the court must conclude that a preponderance of the evidence supports the conclusion of Serenity's expert with regard to Serenity's charges for recovery support treatment. Here, again, the county failed to provide competent, admissible evidence tending to show a different market rate than the one provided by Serenity's expert and instead relied upon criticisms of the expert's approach. The preponderance of the evidence on this question again supports Serenity's position.
These conclusions, coupled with the evidence tending to show that Serenity's charges for inpatient residential and intensive outpatient treatment were at or near the market price for such services, lead to the further conclusion that Serenity did charge substantially less than the market rate for its addiction treatment programs. This conclusion, coupled in turn with the court's analysis above under the four traditional "gift or giving" factors, takes the court a long way toward a finding that "gift or giving" is present in the activities of Serenity. However, for the sake of thoroughness, the court will address the two remaining forms of giving alleged by Serenity.
The county argues that Serenity's internship program should not be considered as indicating the presence of "gift or giving" because the program requires an outlay of only a very small portion of Serenity's revenues and because Serenity obtains certain benefits from the program by way of recruiting new CADCs. The court disagrees with both of the county's arguments. First, when it comes to discerning the presence of "gift or giving," the size of a particular component of a purported package of gifts does not dictate whether it is worthy of consideration. The question is whether individuals other than those who own or operate
Second, the court does not consider the presence of an incidental recruiting benefit to Serenity from sponsoring the internship program disqualifying as evidence of the presence of "gift or giving." Testimony at trial made clear that Serenity's interns did not ease (and in fact, most likely worsened) the workload for Serenity's CADCs. Moreover, the interns had no obligation to work for Serenity after completing their training. They could, and did, accept employment with other employers. Whatever recruiting benefit Serenity derived seems insubstantial and, frankly, unavoidable given that Serenity both trains and employs CADCs. The overall character of the internship program adds to the impression that Serenity's operations contained the element of "gift or giving" required of a charitable institution by the courts of this state.
Finally, the county argues that the court should not consider Serenity's community outreach activities as signs of "gift or giving" because they are de minimis, because Serenity's expert counted unpaid time by Serenity's staff as giving on Serenity's behalf, and because these activities amount to marketing by Serenity. The discussion above concerning Serenity's internship program dispenses with the county's argument that Serenity's outreach activities are too small to be considered. However, the court agrees, for reasons stated by the Supreme Court in YMCA v. Dept of Rev., that Serenity's expert erred in counting uncompensated time spent by Serenity's employees and board members to promote the mission of Serenity as "giving" by Serenity. See YMCA, 308 Or. 644, 654, 784 P.2d 1086 (1989). The court gives Serenity's community outreach activities little weight
Based on the foregoing analysis, the court concludes that the required element of "gift or giving" is present in the activities of Serenity. As a consequence, the court concludes that Serenity, taken on the whole, was a charitable institution during the 2010-11 tax year. The court further concludes that SLI and SLHS, the separately incorporated legal entities comprising Serenity, were both charitable institutions for purposes of ORS 307.130 and for purposes of applying ORS 307.166 during that same tax year. Now, therefore,
IT IS THE DECISION OF THIS COURT that the property leased to SLI by SLHS is exempt from ad valorem property tax by reason of ORS 307.166.
