The South Dakota Supreme Court will hear arguments May 30 in a case that could affect the tax-exempt status of 25 to 30 hospital-owned senior housing facilities in the state.
Dave Hewett, president of the South Dakota Association of Healthcare Organizations, said losing tax-exempt status could cost each of those facilities tens of thousands of dollars each year, at least.
"As we read it, we still think the law is on the providers' side," he added.
In the case at hand, Freeman (S.D.) Community Hospital and Nursing Home is asking the state high court to grant tax-exempt status to Walnut Street Village, a 10-unit congregate-care facility a half-block from the 85-bed hospital. Without the exemption, the hospital estimates it would pay $32,000 per year in property taxes and owe $59,000 in back taxes. The tax bite for previous years (from the last four months of 1997, when residents first moved in, through the 2000 tax year) was less because the tax was being phased in.
The hospital argues that 1988 changes to state laws exempt any healthcare-related property owned by not-for-profit providers from property taxes. Freeman Community contends that Hutchinson County, S.D., officials want to hold the facility to legal standards that apply only to nonhealthcare not-for-profits.
After Walnut Street Village opened in 1997, the hospital applied for an exemption from property taxes. The county board turned down the request in April 1998, prompting the hospital to sue to overturn the decision. A county circuit judge upheld the board's decision in June 2000, and the hospital appealed.
The county argues that what amounts to a luxury senior apartment building shouldn't gain tax-exempt status simply because it is owned by a not-for-profit hospital and has a veneer of healthcare services, such as in-room phone links to the hospital's nursing station. The county also contends that the other legal standards, namely, that the facility must reduce a governmental burden and perform a charitable function, apply to healthcare providers, too.
Hutchinson County contends the true nature of the facility is revealed by the hefty deposits residents had to put down to move in-$55,000 to $75,000. The initial deposits, the county noted in its briefs with the high court, were used to finance more than half of the project's cost of about $1.1 million. Freeman Community could have taken advantage of a federal loan program, but did not want to meet one of the requirements, which was to limit rents for half of the units to make them affordable to low-income residents, according to hospital board meeting minutes excerpted in the county's briefs.
"(Freeman Community) built an apartment building for affluent elderly people in the community. (The hospital) provides a bare minimum of services to its tenants in an attempt to extend its tax-exempt status to this facility," Hutchinson County Circuit Judge Kathleen Caldwell wrote in her ruling.
Freeman Community argues that the in-room phone links to the hospital meet the law's healthcare services requirement, which simply states that the facility must demonstrate "the ability to provide healthcare."