Kings Daughters & Sons Home c/o Pond Home Retirement Center v. Board of Assessors of the Town of Wrentham (September 25, 2007)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


KINGS DAUGHTERS & SONS HOME	v.	BOARD OF ASSESSORS OF 
c/o POND HOME RETIREMENT 		THE TOWN OF WRENTHAM
CENTER

Docket No.  F276527				Promulgated:
		  					September 25, 2007


	This is an appeal filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the appellee to abate taxes on certain real estate in the Town of Wrentham owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38 for fiscal year 2005.  
	Commissioner Rose heard the appeal and was joined by Commissioners Scharaffa and Egan in a decision for the appellee. 
	These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32.  

	M. Robert Dushman, Esq., for the appellant.

	Ellen M. Hutchinson, Esq., for the appellee.  



FINDINGS OF FACT AND REPORT 
On the basis of testimony and exhibits entered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.  At all times relevant to this appeal, Kings Daughters and Sons Home for the Aged in Norfolk County, Inc. ("KDS" or "appellant") was a charitable corporation organized pursuant to G.L. c. 180.  KDS operated a long-term residential care facility known as Pond Home at 289 East Street, Wrentham ("Pond Home" or "subject property").
KDS claimed that, as of the July 1, 2004 qualifying date for the fiscal year 2005 charitable exemption, it occupied the subject property in furtherance of its charitable purposes and that, therefore, the property was exempt from real estate tax.  On February 24, 2004, prior to the March 1st deadline, appellant timely filed Form 3ABC and a copy of Form PC for fiscal year 2005 with the Board of Assessors of the Town of Wrentham (the "assessors").  
Subsequently, the assessors reversed their long-standing treatment of the subject property as tax exempt, based on their determination that KDS had failed to demonstrate to the assessors that the subject property was being occupied in furtherance of its charitable purposes.
On June 30, 2004, the assessors mailed to KDS a fiscal year 2005 tax bill for the subject property.  On September 24, 2004, within three months of receipt of the tax bill and in accordance with G.L. c. 59, § 5B, KDS filed its appeal with the Board.  Based on these facts, the Board found that it had jurisdiction over the subject appeal.
In support of its claim that the subject property is entitled to the charitable exemption from property tax, the appellant presented four witnesses:  Duane Tibbett, Treasurer of the KDS Board of Trustees; Michael Lerner, Director of Real Estate Development for Rogerson Communities; Rebecca Annis, Administrator for Pond Home; and, Michele Visconti, a Ph.D. who does research and consulting for long-term care facilities.
KDS is a Massachusetts corporation organized as a not-for-profit charitable corporation under G.L. c. 180.  Pursuant to the restated Articles of Organization, executed July 23, 1998, KDS was organized to:
establish and maintain a Home, presently known as "Pond Home", in Norfolk County, Massachusetts, for the care and comfortable support of such aged and deserving persons as may be admitted to the Home in accordance with its Admission Policy.
	
In pursuit of this purpose, KDS established Pond Home, a "Level IV retirement home with a discrete Level III Nursing Section for those requiring extra care."  Pond Home is not an assisted living facility but rather a long-term, residential care facility licensed and governed by the Massachusetts Department of Public Health ("DPH"). 
DPH guidelines and regulations require that level III patients receive 1.4 hours of nursing care per day.  Of that, only 0.40 hours must be provided by a licensed nursing professional such as a registered nurse ("RN") or a licensed practical nurse ("LPN").  For level IV patients, there is no daily nursing requirement.  DPH guidelines require only that a licensed nurse provide four hours per month of consulting services.
Situated in a two-and-a-half story renovated colonial-style dwelling, Pond Home, as described by Mr. Tibbetts, is a "comfortable secure environment, [with] meals [and] the opportunity for a lot of interaction among the residents."  Published literature describes Pond Home as "gracious retirement living" for elders who "may" require some assistance.  Residents, however, are encouraged to "maintain the highest level of independent functioning."  
There are twenty-six private rooms with private bath, and four two-room suites with private bath, two of which are licensed to be used as doubles but are currently occupied by only one resident.  Residents are encouraged to bring their own furniture and as many of their personal effects as they would like.  Pond Home will provide furnishings if the resident so requires.  In addition, Pond Home has thirteen nursing-section beds for residents who require some nursing care.  Pond Home provides the nursing section rooms with an electric hospital bed and a small recliner.  Residents, however, are still encouraged to bring as many of their personal belongings as possible.  Pursuant to DPH requirements, the residential care unit and the nursing care unit are on separate floors.
Residents receive three meals daily, plus snacks, personal care services, medication management, weekly housekeeping and laundry services, recreational activities, scheduled transportation, hairdressing, and mail pick-up and delivery.  Additional services are provided under the enhanced care programs which residents may opt for at an additional charge.  The cost of the three enhanced care plans, known as Plans A, B and C, for fiscal year 2005, was an additional $250, $500 and $750, per month, respectively.
Potential residents must be "sixty-five years of age or older."  Ms. Annis testified that the average age of a Pond Home resident is eighty-nine.  Individuals must also be in "reasonably good health and must possess the
physical, emotional and mental capacity for residential living."  Additionally, potential residents must have sufficient assets, as determined by Pond Home, to meet the terms of residency.  Interested persons are required to complete an admissions application which provides Pond Home with certain personal information including, but not limited to, a description of the individual's:  medical condition, assets, including real estate and bank accounts; monthly income and expenses; annual expenses; and, the current value of any life insurance policy.       
This information is then reviewed by the treasurer to "determine financial eligibility."  Mr. Tibbetts testified that, as a rule of thumb, the financial data is examined to see if a prospective resident has sufficient assets and annual income to cover the one-time administrative fee of $2,000, plus his/her monthly room and personal expenses for a period of five years.  For calendar year 2004, room rates ranged from $2,880 to $4,618, monthly, for the level IV beds, and $168 to $215, daily, for the level III nursing beds.  
Using the least expensive level IV room rate of $2,880 per month, or $34,560 annually, and the personal allowance of $500 per month, or $6,000 annually, plus the $2,000 administrative fee, an individual requesting level IV residence at Pond Home would require assets totaling $204,800 ((34,560*5)+(6,000*5)+2,000).  An individual seeking level IV residence in the most expensive room, $4,618 per month, would require minimum assets in excess of $300,000 ((55,416*5)+(6,000*5)+2,000).  Similarly, applying the least expensive level III rate of $168 per day, or $61,320 yearly, a prospective resident in the "nursing section" must have assets totaling approximately $338,000 ((61,320*5)+(6,000*5)+2,000).  For the most expensive level III room, $215 per day, or $78,475 yearly, a prospective resident would require assets in excess of $424,375 ((78,475*5)+(6,000*5)+2,000). 
Individuals that did not have sufficient assets to satisfy the five-year projection were required to have a sponsor guarantee full payment of all fees and monthly charges.  Pond Home is a private facility that does not accept Medicaid.  The facility may, however, provide concessions to residents who are unable to make full payment.  During calendar year 2004, the total amount of subsidy provided by Pond Home was $73,000, to a total of three residents.  According to Ms. Annis, the 2004 concessions amounted to approximately four percent of net income.  She also testified that during the period 2002 through 2004, concessions decreased by more than twenty-five percent.
In an attempt to show that Pond Home was affordable to a large segment of the population, appellant offered the testimony of Michele Visconti, a Ph.D. in health and aging policy, whose primary employment is as a consultant performing long-term care research as it pertains to the affordability of such facilities.  The appellant offered Ms. Visconti's analyses to prove that Pond Home was affordable to a class of persons drawn from a large segment of the population.  For her analyses, Ms. Visconti reviewed data from communities in and around the Wrentham area, including, Bellingham, Foxborough, Franklin, Norfolk, North Attleboro, Plainville, Walpole and Wrentham.  
The foundational assumption for Ms. Visconti's analyses was that the elder person resided in and owned his or her own home, and that the home was to be sold.  Next, Ms. Visconti assumed that the home was sold at eighty-percent of the assessed value, from which she deducted sales costs including real estate commissions, capital gains tax, and repairs and "other", of fifteen percent to determine the net proceeds.  Ms. Visconti also reviewed the 2000 Census figures for "Median Household Income for Greater Than 75."  Based on these income figures, and her generated home sale proceeds figure, Ms. Visconti determined that Pond Home was affordable to the average person.  
The Board found, however, that Ms. Visconti failed to sufficiently explain her assumptions.  Ms. Visconti's primary assumption was that a prospective resident would sell his or her home.  Her supporting data, however, showed that, on average, more than fifty percent of the 75 and older population in the surrounding communities did not own their own home. The Board further found that Ms. Visconti failed to offer supporting evidence for her assumption that an individual's home would be sold at eighty-percent of the assessed value and that total sales costs would equal fifteen percent.  Accordingly, the Board found that Ms. Visconti's analysis did not support the conclusion that Pond Home was affordable to the average person in the community.
Based on all of the evidence presented in this appeal, the Board found that the subject property was not operated as a charitable endeavor because it offered services to a limited segment of the population and it did not relieve or lessen any governmental burden.  The Board further found that potential residents must be in reasonably good health and must possess the physical, emotional and mental capacity for residential living.  Therefore, the Board found the Pond Home residents were able to live independently and that in the absence of Pond Home the residents would not require publicly-assisted housing or hospitalization.  
Moreover, the Board found that prospective residents must submit proof that they had sufficient assets and/or annual income to pay the monthly room fees, plus a personal expense allowance, for a period of five years.  The Board found that this totaled, at a minimum, more than $200,000 for the level IV beds, and approximately $330,000 for the level III beds, for calendar year 2004.  The Board further found that Pond Home did not accept Medicaid and provided only minimal financial assistance, less than four percent of net income.  Consequently, the Board found that Pond Home did not benefit a significantly broad segment of the population.
	Accordingly, the Board issued a decision for the appellee in this appeal.




OPINION
G.L. c. 59, § 5, Third, ("Clause Third") provides an exemption for:
real estate owned by or held in trust for a charitable organization and occupied by it or its officers for the purposes for which it is organized or by another charitable organization or organizations or its or their officers for the purpose of such other charitable organization or organizations.

	That same clause further provides that a charitable organization: 
shall not be exempt for any year in which it omits to bring in to the assessors the list, statements and affidavit required by section twenty-nine and a true copy of the report for such year required by section eight F of chapter twelve to be filed with the division of public charities in the department of the attorney general. Id. 

	A charitable organization seeking an exemption under Clause Third must first comply with the foregoing requirement of timely filing with the assessors the documentation required under G.L. c. 59, § 29 ("Form 3ABC") and G.L. c. 12, § 8F ("Form PC").  See Children's Hospital Medical Center v. Assessors of Boston, 388 Mass. 832, 837 (1983) (timely filing of Form 3ABC and copy of Form PC are jurisdictional prerequisites to action by the assessors and review by Board).  The assessors conceded, and the Board found that the appellant in this appeal timely filed its Form 3ABC and a copy of Form PC for fiscal year 2005.
	Where, as here, a tax bill is issued which treats as taxable real estate which the appellant claims is exempt under Clause Third, the appellant has two choices:  it may apply to the assessors for an abatement under G.L. c. 59, § 59 or it may appeal directly to the Board under G.L. c. 59, § 5B.  See Trustees of Reservations v. Assessors of Windsor, Mass. ATB Findings of Fact and Reports 1991 - 22, 25.  
Pursuant to § 5B, any person who is aggrieved by a "determination" of a board of assessors as to the eligibility or noneligibility of a corporation or trust for the exemption under Clause Third may appeal directly to this Board within three months of the assessors' determination.  A timely filed Form 3ABC puts the assessors on notice of a charitable organization's claim for exemption and the tax bill issued thereafter constitutes a "determination" concerning the charity's exemption claim.  See Trustees of Reservations, Mass. ATB Findings of Fact and Reports 1991 at 28-29.  The fiscal year 2005 tax bill was mailed on June 30, 2004 and, therefore, appellant's § 5B appeal to this Board was due on September 30, 2004.  Accordingly, its September 24, 2004 appeal was timely filed under §5B.  
"A corporation claiming that its property is exempt under § 5, Third, has the burden of proving that it comes within the exemption, and that it is in fact operated as a public charity."  Town of Norwood v. Norwood Civic Association, 340 Mass. 518, 525 (1960) (citing American Inst. For Economic Research v. Assessors of Great Barrington, 324 Mass. 509, 512-14 (1949)).  "The mere fact that the organization claiming exemption has been organized as a charitable corporation does not automatically mean that it is entitled to an exemption for its property. . . .  Rather, the organization 'must prove that it is in fact so conducted that in actual operation it is a public charity.'"  Western Massachusetts Lifecare Corp. v. Board of Assessors of Springfield, 434 Mass. 96, 102 (2001) (quoting Jacob's Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313 (1946)).  
The organization bears the burden of proving that its occupation of the property is in furtherance of the charitable purposes for which it was organized.  See Board of Assessors of Hamilton v. Iron Rail Fund of Girls Club of America, Inc., 367  Mass. 301, 306 (1975).  The Supreme Judicial Court has ruled that the term "occupied" in the clause Third exemption: 
means something more than that which results from simple ownership and possession.  It signifies an active appropriation to the immediate uses of the charitable cause for which the owner was organized.  The extent of the use, although entitled to consideration, is not decisive.  But the nature of the occupation must be such as to contribute immediately to the promotion of the charity and physically to participate in the forwarding of its beneficient objects.
  
Babcock v. Leopold Morse Home for Infirm Hebrews & Orphanage, 225 Mass. 418, 421 (1917) (other citations omitted).  
In determining whether an organization is in fact occupying property in furtherance of its charitable purpose, a court must consider whether the organization's benefits are readily available to a sufficiently inclusive segment of the population.  Charging a fee for services will not necessarily preclude charitable exemption, but "the organization's services must still be accessible to a sufficiently large and indefinite class of beneficiaries in order to be treated as a charitable organization."  Western Massachusetts Lifecare, 434 Mass. at 105.  It is necessary that "the persons who are to benefit are of a sufficiently large or indefinite class so that the community is benefited by its operations."  Harvard Community Health Plan, Inc. v. Assessors of Cambridge, 384 Mass. 536, 543 (1981) (citing Children's Hospital Medical Center v. Board of Assessors of Boston, 353 Mass. 35, 44 (1967), Assessors of Boston v. Garland School of Home Making, 296 Mass. 378, 388-89 (1937), and 4 A. Scott, Trusts at 2897-2898 (3d ed. 1967)).  
Courts and this Board have consistently ruled that a facility serving the elderly must be affordable to limited-income elders to qualify for the charitable exemption under clause Third.  For example, in affirming the Board's ruling that a nursing home was charitable, the Appeals Court in H-C Health Services specifically noted that "[t]he population at the nursing home [was] predominantly Medicaid patients."  H-C Health Services, 42 Mass. App. Ct. at 597.  In finding another nursing home to be charitable, the Board in William B. Rice Eventide Home v. Board of Assessors of Quincy, Mass. ATB Findings of Fact and Reports 2006 - 457, 481, reversed on other grounds No. 06-P-1440 (August 27, 2007), emphasized that approximately two-thirds of the residents were Medicaid patients and that the taxpayer operated at a substantial deficit for the years at issue.  See also, Fairview Extended Care Services v. Board of Assessors of Danvers, Mass. ATB Findings of Fact and Reports 1997 - 800, 805 (finding that taxpayer qualified for charitable exemption where residents were predominantly Medicaid patients, representing 65%-70% of the population).  
Conversely, in affirming the Board's denial of a charitable exemption to an elderly retirement community corporation, the Supreme Judicial Court in Western Massachusetts Lifecare focused on the stringent selection requirements which limited the availability of the organization's services to a select portion of the community's elderly population:
The benefits of Reeds Landing are limited to those who pass its stringent health and financial requirements, requirements that make most of the elderly population ineligible for admission.  The class of elderly persons who can pay an entrance fee of $100,000 to $300,000 and have, from their remaining assets, monthly income of $2,000 to $7,000 is a limited one, not a class that has been "drawn from a large segment of society or all walks of life."
      
434 Mass. at 104 (quoting New England Legal Foundation v. City of Boston, 423 Mass. 602, 612 (1996)).  
In Jewish Geriatric Services v. Board of Assessors of the Town of Longmeadow, Mass. ATB Findings of Fact and Reports 2002 - 337, 366, aff'd, 61 Mass. App. Ct. 73 (2004) the taxpayers sought to distinguish their facility from that at issue in Western Mass Lifecare based on its view that it lacked the high entrance fee charged at Reeds Landing and also the requirement that prospective residents prove that they had sufficient assets and income to pay.  Jewish Geriatric, 61 Mass. App. Ct. at 79.  The Board and the Appeals Court, however, were not persuaded by the taxpayer's attempt to distinguish the facilities.  The court noted that Jewish Geriatric's "monthly fees of $1,890 to $5,280 [were] comparable to, if not higher than" those at Reeds Landing.  Id.  Moreover, "the slim showing of actual subsidies being awarded demonstrated that the screening processes successfully narrowed the pool of applicants to an impermissibly small portion of the elderly community."  Id.  See also, John Bertram House of Swampscott, Inc. v. Board of Assessors of the Town of Swampscott, Mass. ATB Findings of Fact and Reports 2006 - 306, 326 ("Where [] the selection requirements and the monthly fees charged to residents are so restrictive that they limited the class of beneficiaries, the Board and the Court have found that the organization claiming exemption does not in fact operate as a public charity."); Kings Daughters & Sons Home, et al. v. Board of Assessors of the Town of Wrentham, Mass. ATB Findings of Fact and Reports 2002 - 427, 456-457 ("Kings Daughters I") (Where potential residents were required to be of good health and have significant assets and income to qualify for admittance, Board found and ruled that taxpayer did not serve a significantly large segment of the population and, therefore, did not operate as a public charity.).
Additionally, a charitable organization must "'lessen[] any burden government would be under any obligation to assume.'"  Western Massachusetts Lifecare, 434 Mass. at 105 (quoting Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 717 (1944)).  Relieving the government from some obligation is "frequently put forward as the fundamental reason for exempting charities from taxation."  Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 717 (1944).
Private organizations can operate in furtherance of a charitable purpose when they "perform activities which advance the public good, thereby relieving the burdens of government to do so."  Sturdy Memorial Foundation v. Board of Assessors of the Town of North Attleborough, Mass. ATB Findings of Fact and Reports 2002 - 203, 218, aff'd, 60 Mass. App. Ct. 573 (2004) (citing Molly Varnum Chapter DAR v. City of Lowell, 204 Mass. 487 (1909)).  "However, to the extent that a[n] [] organization is conducting a business for profit, it is not relieving government of a burden and,
accordingly, its business is not charitable."  Sturdy Memorial Foundation, Mass. ATB Findings of Fact and Reports 2002 at 218 (citing Hairenik Association, Inc. v. City of Boston, 313 Mass. 274, 279 (1943)).       
Furthermore, the appellant presented no evidence to show that it serviced a segment of the population that otherwise would have required a government-provided alternative means of care.  See Western Massachusetts Lifecare, 434 Mass. at 106 (denying exemption to a continuing care retirement community whose residents "enjoy[ed] sufficient good health to live independently").  Contra Fairview, Mass. ATB Findings of Fact and Reports 1997 at 810 (finding that the use of property as a nursing home alleviated a burden of government).  The Board thus found and ruled that Pond Home did not provide any benefits that relieved the government of the burden of providing alternative nursing care or more expensive publicly-assisted hospital care to the Pond Home residents.  
In this appeal, the Board found and ruled that the appellant failed to meet its burden of proving that Pond Home benefited a sufficiently inclusive section of the elderly community.  The Board found that Pond Home's requirement that prospective residents provide proof that they have sufficient assets and/or annual income to pay the
monthly room fees, plus a personal expense allowance, for a period of five years, which the Board found totaled more than $200,000, operated to limit its class of potential beneficiaries to an impermissibly limited class of elderly residents.  The Board further found that the appellant failed to prove that Pond Home serviced a segment of the population that otherwise would have required government-subsidized nursing home care.  Therefore, the Board found that the appellant did not operate to relieve or lessen any governmental burden.
Accordingly, the Board ruled that this appeal is similar to the long line of cases including Western Massachusetts Lifecare, Jewish Geriatric, Kings Daughters & Sons I and Bertram House, involving high-priced continuing care and assisted-living communities housing physically and financially independent elderly residents who would not have depended upon government assistance for their care. 

On the basis of all these facts, the Board found and ruled that KDS was not entitled to an exemption for the subject property for fiscal year 2005.  Accordingly, the Board issued a decision for the appellee.

						APPELLATE TAX BOARD


				 By:	___________________________________
					Thomas W. Hammond, Jr., Chairman



A true copy,

Attest: _____________________________
	       Clerk of the Board 

 Mr. Tibbetts acknowledged that these figures do not take into consideration the annual room rate increase of three percent on average.
  Kings Daughters I involved a parcel of property in Wrentham, also owned by KDS, which was improved with sixty-six independent living units known as The Community at Pond Meadow.  

ATB 2007-1043