In this case, the Court evaluated whether or not ElderTrust was entitled to a charitable tax exemption on two properties it owned and operated as a skilled nursing facility and an assisted living facility. RSA 72:23, V allows a tax exemption for “the buildings, lands and personal property of charitable organizations … used and occupied by them directly for the purposes for which they are established, provided that none of the income or profits thereof is used for any other purpose[.]” The term “charitable” is defined in RSA 72:23-l. While the Court had interpreted and applied both of these statutes in previous cases, it had always done so narrowly, focusing on specific aspects of the question. In this case, the Court was called upon for the first time to set forth a complete set of factors against which a charitable tax exemption must be evaluated. The Court held that an institution must satisfy each of the following four factors in order to qualify for a charitable tax exemption: (1) the institution or organization was established and is administered for a charitable purpose; (2) an obligation exists to perform the organization’s stated purpose to the public rather than simply to members of the organization; (3) the land, in addition to being owned by the organization, is occupied by it and used directly for the stated charitable purposes; and (4) any of the organization’s income or profits are used for any purpose other than the purpose for which the organization was established (such as the organization’s officers or members may not derive any pecuniary profit or benefit).
The Court then applied this test to ElderTrust and its properties. As to the first factor, the Court agreed that ElderTrust’s articles of incorporation required it to be “operated, exclusively for public charitable uses and purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, to establish, acquire, own, maintain, and operate hospitals, nursing homes and related health care facilities, including retirement housing for elderly persons.” The articles of operation also required ElderTrust to provide a level of care or services above that of mere apartment or rental units, with the possible exception of basic retirement housing.
The second factor requires that the public service the applicant is to render must be enforceable by the Attorney General if it is not performed. Since ElderTrust’s articles of incorporation required it to be operated “exclusively for public charitable uses and purposes,” it was an enforceable requirement. However, there was no express requirement to provide services to “persons of low and moderate income.” The Court noted that if the organization did not actually provide those services, it could affect whether the next factor in the test was met.
To meet the third factor, the occupancy of the property must be reasonably necessary for the organization to carry out its mission. When the use is slight, negligible or insignificant, or not in the performance of the public purpose, the applicant is not entitled to a tax exemption. In this case, it was clear that ElderTrust provided more services than would be provided at a mere aggregate living facility, and that the buildings were used and occupied directly to advance ElderTrust’s charitable purpose. The town argued that since these services were not provided for free, the test was not met, but the Court disagreed. Such fees are acceptable as long as they “directly fulfill the organization’s charitable purpose, or are necessary for the organization to accomplish its purpose.” In actual practice, ElderTrust allowed people to remain at the facilities despite an inability to pay, and allowed some patients to pay substantially below the advertised rate.
Finally, the Court considered whether ElderTrust’s income or profits were used for any purpose other than the purpose for which it was established, and whether ElderTrust offered a pecuniary profit or benefit to it officers or members, or any restrictions which confine its benefits or services to such officers or members, or those of any related organization. This was a much closer question because ElderTrust paid a substantial amount of its earnings to the real estate trust that held the mortgages on the properties and to a subsidiary organization that managed the facilities for ElderTrust. Both of these other entities were for-profit, and two members of ElderTrust’s board held stock in them. The Court stated that it “harbor[ed] some concern about the overlapping interests” of these entities, but was bound by the statute to find that ElderTrust met the test.
However, although the Court found that ElderTrust qualified for the exemption, it also noted that this was a particularly close case, especially regarding the second and fourth factors, and stated that “the legislature is of course free to amend the statutory scheme, should it disagree with the result[.]”