On appeal from the Tax Court of New Jersey, Docket Nos. 2348-2002; 4027-2003; 5159-2004; 7504-2005, whose opinion is published at 23 N.J. Tax 473 (Tax 2007).
The opinion of the court was delivered by: Cuff, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Cuff, Fisher and Baxter.
In this appeal, we consider the interpretation of a 1993 amendment to N.J.S.A. 54:4-3.6, which declares that the real property of various health care providers is exempt from local real estate taxes. At issue is whether an assisted living facility must provide charity care in order to qualify for the exemption. The Tax Court judge held that an assisted living facility must do so before qualifying for the exemption, and declared that plaintiff was not entitled to tax exempt status. We disagree and reverse.
Plaintiff, The Presbyterian Home at Pennington, Inc. (PHP), is a nonprofit corporation affiliated with Presbyterian Homes and Services (PHS), which also is a nonprofit corporation. On October 1, 2001, PHP purchased Stony Brook Assisted Living (Stony Brook), located at Route 31 and West Franklin Avenue in Pennington from New Jersey Property Titles Holdings I, LLC for $13,300,000. Stony Brook had been organized as a for-profit organization but had not commenced operation prior to its sale to PHP. PHP applied for tax exempt status for the tax year 2002. By letter dated October 24, 2001, defendant, Borough of Pennington (Pennington), denied PHP's application for tax exempt status. Pennington assessed the property's value at $1,042,800 for land and $8,286,200 for improvements; the tax calculated was $74,860.41.
On April 1, 2002, PHP filed a complaint in the Tax Court challenging Pennington's decision to deny it a real estate tax exemption for tax year 2002. Thereafter, Pennington revised its tax list to identify PHP's property as tax exempt in order to protect Pennington from undue exposure in connection with its ratable-based obligations for the school district for which Pennington collected taxes.
On May 23, 2003, however, Pennington filed a complaint in the Tax Court seeking reversal of the exemption it granted PHP for 2003. Another complaint filed on June 4, 2004, sought similar relief for the 2004 tax year. Although never formally consolidated, the parties' cross-motions for summary judgment addressed the three complaints, all of which present a common issue.
The following facts are taken from PHP's motion for summary judgment:
PHP's Stony Brook facility has ninety-six units including nineteen or twenty units for Alzheimer's and other memory-impaired patients. Its 2003 monthly rates were $3538 for a studio, $4178 for a one bedroom unit, and $5032 for Alzheimer's care. New residents pay a community fee of $2500, of which $2250 is returned if the application is rejected. The community fee is applied to capital replacement and facility repairs.
At the time of the summary judgment motions, Stony Brook's primary market area was within a ten-mile radius of the facility with the exception of the state of Pennsylvania and "sections of Trenton." For marketing purposes, PHS considered "Income Qualified Households" to be those with an annual income over $35,000. It forecast that the assisted living facility "will generally be filled by individuals with incomes over $35,000 and individuals with incomes between $15,000 and $35,000 who own their own home sufficient to cover the monthly fees and other estimated living expenses." Stony Brook made no efforts to market its facility to Medicaid eligible residents. Ten percent of the units are reserved for Medicaid-eligible persons.
The facility opened for its first residents on February 4, 2002. PHP and PHS executed a facility management agreement, dated October 1, 2001, under which PHS agreed to provide management and administrative support services for Stony Brook, subject to PHP's "general supervision." Both PHP and PHS are qualified as tax exempt under section 501(c)(3) of the Internal Revenue Code. PHP's affairs are governed by a Board of Trustees, all of whom are uncompensated with the exception of the president. PHP owns no other real property.
PHP's August 30, 2000 certificate of incorporation states that it was "organized exclusively for charitable purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code." PHP's bylaws set forth its purposes as follows:
2.1 Purposes. [PHP] is organized exclusively for charitable purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code (the "Code"), including without limitation:
(a) To provide elderly, disabled and other needy persons with housing facilities, medical, nursing and physical care, understanding, companionship and other services to help them lead satisfying lives, including, without limitation, the establishment of homes, communities, facilities and services to carry out this purpose;
(b) To develop and maintain other housing facilities and health and welfare services, programs or facilities for persons of any age to help meet social needs;
(c) To cooperate with health care providers through joint ventures or other arrangements to better serve the health care needs of the communities [PHP] serves;
(d) To render to any persons, whether residing in facilities maintained by [PHP] or any organization affiliated with [PHP], or residing elsewhere, community outreach services and charitable assistance when circumstances warrant such services and assistance and when funds for such charitable assistance are available;
(e) To provide meals, nutritional, medical and housekeeping services, assistance in daily living and other charitable assistance to needy individuals;
(f) To furnish services, facilities, and charitable assistance without regard to a person's sex, race, creed, color or national origin; and
(g) To make distributions to charitable organizations described in section 501(c)(3) of the [Internal Revenue] Code in furtherance of [PHP]'s purposes.
PHS was founded in 1916 by the Presbyterian Church, but those entities are no longer legally connected. At the time of the cross-motions, PHS was comprised of various affiliated nonprofit corporations that own and operate four continuing care retirement communities, three assisted living facilities, one personal care home, and fourteen affordable housing facilities. PHS also provides consulting and management services to municipalities and other organizations that want to provide retirement housing programs. The Presbyterian Homes of New Jersey Foundation, Inc. (the Foundation) is the charitable arm of PHS that raises money to "provide funding for residents who can no longer pay the cost of their care." From 1998 to July 2003, the Foundation provided $502,705.79 in assistance to sixteen residents of PHS communities.
Under the October 1, 2001 management agreement between PHP and PHS, PHS was provided with "complete authority and power" over personnel, financial procedures, contracts with suppliers and third parties, collection and disbursement of funds, insurance, and facility maintenance. In exchange, PHP paid PHS an annual fee of five percent of its revenues.
In addition to the management fee under the agreement, PHS charged PHP separately for Stony Brook's executive director's compensation, for information technology (IT) services, and centralized accounting and legal services. PHP's executive director is an employee of PHS and her compensation is charged to PHP at cost. PHS's cost for providing IT services is allocated among its various facilities based on usage. There is a similar arrangement for financial and legal services based on time expended or transactions completed.
PHS's vice president of finance, Garrett Midgett, certified that it was PHS's intention in allocating the centralized costs to provide a "reasonable and fair method" of charging costs to the affiliated facilities. PHS's general counsel, Maureen Cafferty, certified that the percentage cost of legal services allocated to PHP did not exceed, and more likely was below, the percentage of time she actually spent providing legal services to it. PHP required more legal services because it had far more employees than the affordable housing facilities, and its status as an assisted living residence implicated ongoing licensure, regulatory, and health care law issues.
Eric Gurley, PHS's senior vice president of finance and its chief financial officer, certified on information and belief that in PHS's ninety-year history none of its affiliated senior care facilities ha[d] ever evicted a resident who, through no fault of their own, ha[d] become unable to afford the charges for their care. I knew this is true [sic] for the entire period that I have been working at [PHS] since 1992. PHP's goal is to operate the same way, and to maintain such residents even after they have spent down their funds.
Although PHP "can make no binding promises" that residents would not be evicted for inability to pay, Gurley explained that was because PHP could not guarantee that there would be funds from its resources, PHS, or the Foundation to subsidize a resident who had spent his or her own assets and for some reason did not qualify for Medicaid benefits. He also certified that after PHP reached "its target occupancy level, [the Foundation] intends to provide a subsidy to PHP to cover any shortfalls arising [from] a resident's inability to pay."
Gurley said none of the residents of the assisted living facilities had applied for financial assistance. PHS had no specific procedures to provide advances by the Foundation to assisted living residents, but the existing policies were "generic." He admitted that residents of the continuing care communities had advanced hundreds of thousands of dollars as entrance fees, and the Foundation had the right to recoup from those fees any monies it had advanced to a resident who had exhausted his or her income.
PHP provides higher staffing levels than typical for-profit facilities. For example, regulations require one nurse be on- site for one eight-hour shift each day, yet PHP maintains three nurses, one for each shift.
Lori High, PHP's marketing director, stated that the only financial criterion for admission was that the resident be able to pay privately for two years. The two-year requirement is based on historical data that shows most people live in an assisted living facility for two years before they die or transfer to a skilled nursing facility.
As an assisted living facility, PHP is required to accept the rate set by Medicaid. But applicants cannot rely on Medicaid as a means to qualify for the income/asset requirement for admission. Under PHS's policy, residents who become qualified for Medicaid are required to move into a shared accommodation, ...