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Capstone Group, Inc. v. Guthrie County Board of Review

Court of Appeals of Iowa

January 9, 2020

CAPSTONE GROUP, INC., Plaintiff-Appellant,
v.
GUTHRIE COUNTY BOARD OF REVIEW, Defendant-Appellee.

          Appeal from the Iowa District Court for Guthrie County, Thomas P. Murphy, Judge.

         Capstone Group, Inc. appeals from the district court ruling that affirmed the assessed value of its real estate. REVERSED AND REMANDED.

          Teresa K. Baumann, Samuel E. Jones, and Laurie L. Dawley of Shuttleworth & Ingersoll, Cedar Rapids, for appellant.

          Brett Ryan of Watson & Ryan, PLC, Council Bluffs, for appellee.

          Heard by Bower, C.J., and May and Greer, JJ.

          GREER, JUDGE.

         We must decide whether a nonprofit community for the elderly with various levels of care qualifies for a property tax exemption. Capstone Group, Inc. (Capstone) appeals from the district court ruling that denied a property tax exemption for the facility. It argues the property is exempt from taxation because it is a charitable institution that operates the property solely for charitable purposes and without a view to pecuniary profit. We agree the entire property qualifies for the property tax exemption, and we reverse the district court and remand for entry of an order exempting the property.

         I. Background Facts and Proceedings.

         Capstone is a tax-exempt 501(c)(3) corporation. In 2013, Capstone bought The New Homestead (TNH) nursing facility in Guthrie Center, the property at issue here. Before purchase and until this renewed assessment in 2017, TNH received property tax relief as a charitable nonprofit entity. To aid with the purchase of TNH, Capstone used a donation from a non-profit entity that had once owned skilled nursing care facilities in other states.[1] TNH sits on approximately ten acres and offers three levels of care directed at the elderly: independent living, assisted living, and skilled nursing.[2] TNH serves a five-county area in rural Iowa. Michael Michaud, president and treasurer of Capstone, testified TNH offers a "continuum of care," which allows individuals with a variety of care needs to reside in the same community.

         At first glance, the seventeen independent-living units operate much like regular landlord/tenant apartments. But unlike a regular apartment, the monthly rental includes several amenities, such as housekeeping, maintenance and repair, utilities, and a daily meal. The residents in these units, along with the other levels of care, all benefit from free quality-of-life enrichment activities. These occur twice a day along with a monthly field trip. While TNH does not provide medical care to its independent-living residents, residents may contract with third parties for medical care in their independent-living apartment. Michaud testified one current independent-living resident receives public housing assistance and another resident recently applied for assistance.

         The next level of care is the assisted-living units. TNH has fourteen of these assisted-living apartments. Fees cover the room rental, three daily meals, other amenities, and individualized assistance. According to a census Capstone prepared for trial, two assisted-living residents were currently using an elderly waiver to pay for their apartments.[3]

         Finally, TNH maintains sixty-four skilled-nursing beds, all of which are certified for payments from Medicaid, also known as Title XIX. Effective October 1, 2017, the daily skilled-nursing fees range from $217 for a semi-private room to $229 for a private room. Regardless of TNH's skilled-nursing fees, Medicaid only reimburses TNH approximately $173 per day per qualified skilled-nursing resident. For 2016, Capstone reported a Medicaid utilization rate of 52.08% for skilled-nursing beds with an average daily cost per skilled-nursing resident of $192.08.

         Michaud testified TNH has produced a cumulative profit of 1.22% since Capstone's purchase in 2013. It sustained losses in 2016 and 2017. Healthcare of Iowa, Inc. (Healthcare), a third-party for-profit company, manages TNH. Capstone pays Healthcare a percentage of TNH's revenues for its management services plus an additional monthly fee for accounting.

         At trial, Michaud explained the resident mix and their financial resources. Residents pay TNH using personal assets, private insurance, or Medicaid or other public assistance. Michaud testified Capstone has never denied anyone admission to TNH or evicted anyone for financial reasons, though Capstone may deny admission because of medical needs. If a resident exhausts their personal resources, Capstone works with the ...


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