Submitted April 4, 2017
from the Board of Tax Appeals, Nos. 2012-138, 2012-139,
2012-140, and 2012-141.
& Greenberg, L.L.P., James G. Kordik, Cynthia L.
Westwood, and Channing M. Kordik, for appellant.
& 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
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
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.
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 ...