Nonprofit Hospital Exemption Flows Through to Property Collectively Owned by Hospitals
In Michigan Co-Tenancy Laboratory/Trinity Health v. Pittsfield Charter Township, Michigan Court of Appeals, No. 310376, November 14, 2013, the Court of Appeals held the property that was collectively owned by the taxpayers’ nonprofit hospitals under an arrangement consisting of co-tenant hospitals was exempt from local Michigan property tax as personal property of a charitable institution and as real or personal property owned and occupied by a nonprofit charitable institution because the taxpayers were charitable institutions. Each of the nonprofit hospitals possessed, as tenants in common, an undivided interest in laboratory medical testing equipment. The operating agreements gave no ownership interests to any other party or entity. The laboratory itself was managed by a third-party contractor that was paid by the co-tenants to provide laboratory management services.
The township argued that the property was not solely used for charitable purposes because excess capacity of the laboratory was leased to a partnership that occasionally sold it to for-profit hospitals. However, the non-charitable use occurred only when the property would otherwise go unused, and the non-charitable use actually benefited the charitable use of the property by reducing the cost per unit of testing. Further, the lease of the excess capacity was at all times subordinate to the co-tenant’s use of the property.