Riverview Hospital v. City of Tomahawk

Action begun July 8, 1941, by Riverview Hospital, a corporation, against the city of Tomahawk to recover taxes paid under protest. From a judgment in favor of plaintiff, defendant appeals.

Dr. R. J. Henderson established a hospital; later he conveyed the property, real and personal, to the plaintiff, a corporation organized as a nonstock, nonprofit corporation. The members of the organization are R. J. Henderson, Evelyn L. Henderson, and W. I. MacFarlane. Evelyn L. Henderson is the wife of Dr. Henderson, and Dr. MacFarlane, a dentist, is a friend of his. The property was conveyed for a nominal consideration. It is provided in the articles of incorporation that members of plaintiff corporation are to receive no dividends or any pecuniary profit, and all profits, if any, are to be used solely in increasing the facilities of the hospital and in the reduction of rates. The plaintiff receives all persons applying for admission, and without first making inquiry as to their ability to pay for services, and while it endeavored to operate at a profit and sought to collect the regular rates from all patients, it appears that in the year 1940, the year involved here, that the plaintiff operated at a loss of upwards of $3,000, which deficit was made up by Dr. Henderson. There were donations made by others of operating lamp, oxygen mask, vases, baskets, equipment for the maternity ward, vegetables, and other supplies. During the year 1940 the said hospital accepted three hundred eight patients in all; eighteen of these were accepted although known to the officers and superintendent to be charity patients when they were admitted, from whom nothing could be collected, three of those accepted were considered patients from whom any collection would appear to be very remote, twenty-seven of said patients have not as yet paid their bills and collection of any balance due is very questionable, while five additional have not paid their bills to the hospital in full, but there is a possibility of collection of the balance, and it appears that Lincoln county sent two patients, included in the above total, to said hospital for treatment, as public charges, and the plaintiff billed said county for caring for said public charges at the usual rate, but was paid at a reduced figure, and payment thereof was deferred for some time after service was rendered.

It also appears that the membership in plaintiff is provided for as follows in the articles of incorporation:

"Any person wishing to join the membership of this corporation, must have his name placed before the board of directors upon the nomination of one of the directors of said corporation, and if such nomination is accepted by a two-thirds majority then present at such meeting, the name of the person nominated shall be placed upon the membership roll by the secretary of the corporation.

"Upon the motion made and seconded by any director of the corporation, any member of this corporation may be expelled with or without cause upon such motion duly seconded, being passed by a two-thirds majority of all the directors. Upon the passing of said motion the secretary shall remove from the membership roll the name of the person expelled."

The trial court made findings of fact and by its conclusions of law held that: "Plaintiff was and is a benevolent association, within the meaning of sec. 70.11 (4) of the statutes, and the plaintiff was a charitable institution," and granted judgment as prayed for in the complaint.

Defendant in its appeal raises the point that plaintiff's property is not exclusively devoted to the purpose of charity but rather is substantially used by Dr. Henderson for his private purpose and therefore the property of plaintiff is not to be exempted from taxation. We are of the opinion that this case is ruled by Prairie du Chien Sanitarium Co. v. Prairie du Chien (1943), 242 Wis. 262, 7 N.W.2d 832, and the judgment must be reversed.

The difference to the public between the service of an eleemosynary institution and that of a purely commercial one may at times seem somewhat insubstantial. It is to be expected that any undertaking to continue as an active institution will confer some benefit on the community in which it is to exist. So the idea of blessings conferred on patrons is not necessarily a controlling factor in determining whether a hospital can be held to be exempt from taxation as a charitable institution. As pointed out by cases reviewed and referred to in the Prairiedu Chien Case, supra, the line of distinction in tax matters between a charitable organization and others is to be found by the light of the relation between the hospital and its actual owner. The test is its origin and the objects of its organizers, its complete dedication to charitable purposes and absolute divorce from gain to those controlling ownership. In determining whether a gift is charitable, courts are not concerned with the donor's motive beyond such light as it may throw upon his true purpose and the manner of the use to be made of the so-called charity as it relates to the donor's private business. And it is not necessary that the donee of a charitable gift be a religious corporation.

"Under constitutional and statutory provisions granting exemption with respect to property used exclusively for charitable purposes, exemption will be granted where the charitable use is exclusive, and denied where it is not. . . . Where the charitable use is not substantial, exemption will be denied, as where charitable use is merely incidental to a principal use of another character." 61 C.J. p. 459. The taxing authorities are not to be confined strictly to the phrases used in resolutions or to the terms within the four corners of the articles of organization or incorporation in making their investigation and determination as to the taxability of the property of a hospital. The courts will consider the close connection between donor and donee and the reserved power of control by the donor over the institution and its capability of enabling him to harvest the returns flowing from the combination of the hospital and his private practice.

While the setup here is at least verbally somewhat different than in the Prairie du Chien Case, supra, and the organizer here has arranged to give his time to the hospital, still the surrounding circumstances showing purpose, management, and connection with private enterprise are such that the hospital is under the rule recognized in that case that "an association or corporation claiming to be benevolent, in order to qualify its property for exemption from taxation, must use it so free from connection with profits accruing to those owning it as clearly to be a charitable institution." (p. 266.) In that case it was held, as it must be here, that the property is not exempt when members of the owner organization are using the hospital as "an adjunct to their private business in such a way that it becomes a source of substantial help in the matter of earnings to be derived from the practice of their profession." (p. 267.) All that was said in the Prairie du ChienCase covering the use made of the hospital by its owner and his control over it appear here although respondent did not specifically grant to its owners exclusive use of the operating room and provide for meals; for there is no doubt that the hospital is conducted and managed primarily for the greater income and profit of the managing doctor in the practice of his profession. The hospital was extensively patronized as appears in the statement of facts. The evidence shows also that Dr. Henderson, due to differences arising between himself and Sacred Heart Hospital in Tomahawk, was without hospital facilities and he organized the respondent giving it the property involved. A charge is made for every patient entering the hospital and every means is used to effect collection. At the time the corporation was formed, it adopted the fees originally fixed by Dr. Henderson when operating the hospital as an individual. It does appear that all deficits of the hospital are paid by him. It also appears from the incorporation proceedings that the organization is so arranged that the power to control the property is in Dr. Henderson. The control is not given irrevocably as a charity to a charitable or benevolent institution.

We do not find it necessary to go more fully into the evidence. The benefit conferred by the organization of the hospital cannot be said to be so much to the public and so little to the donor and corporate owners as to place it in the class of property covered by sec. 70.11 (4), Stats. It is not unusual for professional men to fail in collecting a just fee for some of their effort. A profession is based on an ideal which comprehends service to mankind. While the loser may find solace in the thought that by reason of a patient's failure to pay his bill a contribution to charity has been made, the kindness granted cannot become a justification, for exemption from taxation of the hospital in which the service was rendered. The conclusion of law should have been to that effect. See 144 A.L.R. 1483, 1490.

By the Court. — Judgment reversed, cause remanded with directions to enter judgment dismissing plaintiff's complaint.

FRITZ, J., dissents.