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Dialysis Centers of Dayton, L.L.C. v. Testa, Tax Commr.

Supreme Court of Ohio

June 15, 2017

Dialysis Centers of Dayton, L.L.C., Appellant,
Testa, Tax Commr., et al., Appellees.

          Submitted April 4, 2017

         Appeal from the Board of Tax Appeals, Nos. 2012-138, 2012-139, 2012-140, and 2012-141.

          Rogers & Greenberg, L.L.P., James G. Kordik, Cynthia L. Westwood, and Channing M. Kordik, for appellant.

          Rich & Gillis Law Group, L.L.C., Mark H. Gillis, and Kelley A. Gorry, for appellee West Carrollton City School District Board of Education.

          Michael DeWine, Attorney General, and Daniel W. Fausey and Raina M. Nahra, Assistant Attorneys General, for appellee Tax Commissioner.

          PER CURIAM.

         {¶ 1} Appellant, Dialysis Centers of Dayton, L.L.C. ("DCD"), contests the Board of Tax Appeals' decision affirming the denial of its request for property-tax exemption for its four dialysis-service centers for tax year 2007 and the denial of its requested remission of the property taxes it paid for those facilities for tax year 2006. The BTA upheld the tax commissioner's denial of the exemption on the ground that the record failed to demonstrate a sufficient level of charitable care. Although we hold that remission was properly denied for tax year 2006, we conclude that for tax year 2007, DCD's use of space at the four centers qualified for exemption. However, the record also shows that some space in the facilities was leased to private physicians, so the properties should be split-listed, with a portion taxable and the dialysis-service facilities exempt. We therefore affirm the decision of the BTA as to tax year 2006 and reverse it as to tax year 2007, and we remand the cause to the tax commissioner for determining what portion is exempt.


         {¶ 2} DCD was formed in 1998 by Miami Valley Hospital and five physicians. The physicians were members, and thereby part-owners, of the company until August 1, 2006, when Miami Valley Hospital became its sole member. Miami Valley Hospital is a nonprofit entity with 26 U.S.C. 501(c)(3) status as a charitable institution ("501(c)(3) entity"). When the hospital became the single member of the limited-liability company, DCD became "disregarded as an entity" for federal-tax purposes. 26 C.F.R. 301.7701-3(f)(2). As a result, its transactions appear on the hospital's tax returns as if DCD were a division of the hospital. 26 C.F.R. 301.7701-2(c)(2); 26 C.F.R. 301.7701-3(b)(1)(ii).[1]

         {¶ 3} Each of the four properties at issue was improved with a building at which DCD provided dialysis services in 2006 and 2007. In order to be treated at one of the facilities, a person needed a referral from either a hospital or a private physician. When a new patient was referred to DCD, either a hospital caseworker or a DCD employee would evaluate the patient's options for paying for the treatment. Potential sources of payment, other than the patient himself, were Medicare, Medicaid, and insurance. If an indigent patient had no insurance, DCD attempted to obtain coverage for the person through Medicare or Medicaid. If a patient had to pay a portion or all of the costs, DCD had the patient fill out a form to determine whether he qualified for charitable care. Although DCD pursued all payment options, including private insurance, Medicare, and Medicaid, it treated all patients, regardless of whether the treatment would be covered by a third party or whether the patient could afford the treatment costs.

         {¶ 4} DCD's operating agreement that became effective on August 1, 2006, states that the "charitable purpose" of DCD is to, among other things, "provide services to indigent patients regardless of their ability to pay." At the BTA hearing, Miami Valley Hospital's vice president of finance, who had formerly been the board chairman of DCD, was asked whether DCD would treat "any patient that walks in the door, " and he responded, "We see everybody."

         {¶ 5} The tax department requested that DCD quantify the amount of "uncompensated care" provided, defining that term to exclude write-offs of bad debt. DCD stated that in 2007, it provided "approximately $435, 000 in Charity Care of approximately 150 patients (28% of total patients treated)."

         {¶ 6} Some space in the properties at issue was leased to "Renal Physicians, Inc." or "Renal Partners II, Inc." One lease began in 1992, another in 1995, and a third in 1998. Starting rent varied from $1.25 per month per square foot to $13.95 per month per square foot; under one contract, the rent was to increase over time. The physician/medical directors at the clinics were independent contractors, and the leased space was for those physicians' offices, not for patient visits. It was not clear from the testimony whether all four properties were encumbered by such leases.

         {¶ 7} DCD filed its four exemption applications in November 2007, one for each of the properties at issue. By final determinations issued November 16 and November 21, 2011, the tax commissioner denied exemption for the primary reasons that the evidence indicated that no more than minimal charitable care was provided at the sites and DCD itself was a for-profit entity. In BTA Nos. 2012-139, 2012-140, and 2012-141-but not BTA ...

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