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BlogsPublications | November 7, 2016
2 minute read

COA: Nonprofit hospital’s property tax exemption does not extend to its for-profit subsidiary

A for-profit company is not entitled to a charitable institution exemption, even if it is wholly owned by a nonprofit hospital, said the Michigan Court of Appeals in Trinity Health-Warde Lab, LLC v Charter Township of Pittsfield, No. 328092.

Trinity Health-Warde Lab, LLC (the “Lab”) is a wholly owned subsidiary of Trinity Health Michigan (“Trinity”). The Lab owns and operates a 57,000-square-foot building in the Charter Township of Pittsfield (the “Township”) used solely as a medical laboratory. Trinity and other nonprofit hospitals use the Lab’s facilities under a co-tenancy laboratory agreement.

The Lab filed a petition with the Michigan Tax Tribunal alleging its real property was exempt from taxation, asserting that Trinity, a charitable institution, has complete corporate control of the Lab and that the Lab is therefore also a charitable institution. The Township responded that the property was not eligible because the Lab, as a for-profit entity, does not meet several requirements of a charitable institution. The Tax Tribunal sided with the Lab, ignoring its separate corporate identity because of Trinity’s domination over the Lab’s management and operation.

The Court of Appeals disagreed. Under the General Property Tax Act, property-tax exemptions are reserved for real property held in a nonprofit trust (MCL 211.7r) or owned or occupied by a nonprofit charitable institution (MCL 211.7o). Based on a reading of the plain language of those statutes, the court ruled, the Lab’s for-profit character precluded it from claiming either exemption.

The court went on to disagree with the Tax Tribunal’s reading of relevant case law. First, it found that Ann Arbor v The University Cellar, Inc, specifically did not decide whether a tax-exempt organization may extend its exemption to a separate corporation, and that the court in that case actually expressed caution as to whether the Legislature intended to permit such an extension to a nonexempt organization. Finally, it distinguished National Music Camp v Green Lake Township because in that case, the related entities that shared use of the property at issue were all tax-exempt.

Thus, the court reversed the Tax Tribunal’s decision and held that a for-profit entity may not use a nonprofit parent corporation’s property tax exemption.