[Cite as Dialysis Clinic, Inc. v. Levin, 127 Ohio St.3d 215, 2010-Ohio-5071.]




    DIALYSIS CLINIC, INC., APPELLANT, v. LEVIN, TAX COMMR., APPELLEE.
  [Cite as Dialysis Clinic, Inc. v. Levin, 127 Ohio St.3d 215, 2010-Ohio-5071.]
Taxation — Charitable-use exemption of real property from taxation — R.C.
        5709.12 — R.C. 5709.121 — Board of Tax Appeals’ denial of claim for
        charitable-use exemption was reasonable and lawful.
  (No. 2009-2310 — Submitted August 10, 2010 — Decided October 26, 2010.)
             APPEAL from the Board of Tax Appeals, No. 2006-V-2389.
                                   __________________
        LANZINGER, J.
        {¶ 1} This is an appeal from a decision of the Board of Tax Appeals
(“BTA”) in a case involving an application for a tax exemption for real property.
Appellant, Dialysis Clinic, Inc. (“DCI”), provides dialysis services for patients
who suffer from end-stage renal disease (“ESRD”). DCI sought to obtain a
charitable-use exemption for its West Chester facility in Butler County, but the
Tax Commissioner denied the application. On appeal, the BTA affirmed the
denial of the exemption, finding that DCI had not shown that it qualified as a
charitable institution for purposes of R.C. 5709.121 or that the use of the West
Chester facility’s real property was exclusively charitable, pursuant to R.C.
5709.12(B).
        {¶ 2} Based on our review of the case law and the record of this case,
and concluding that the BTA’s decision is reasonable and lawful, we affirm.
                                           I. Facts
        {¶ 3} DCI was organized as a nonprofit corporation in Tennessee in
1971. DCI’s charter specifically states that DCI’s purpose is to operate dialysis
clinics and to receive and apply funds to purposes recognized under Section
                                   SUPREME COURT OF OHIO




501(c)(3) of the Internal Revenue Code; as amended, the charter explicitly
prohibits operating for “pecuniary gain or profit.”1
         {¶ 4} On December 22, 2003, DCI filed an application for a property-tax
exemption for tax year 2004 for its West Chester facility, a 9,846-square-foot
building located at 7650 University Drive in Butler County, at which DCI
provides dialysis services to ESRD patients. In the application, DCI stated that
fees for services “are billed to Medicare, Medicaid or insurance companies and
patients with ability to pay. Patients unable to pay for services are not turned
away.”      The application did not identify the statutory sections under which
exemption was sought, but the commissioner reviewed the application as a claim
for charitable-use exemption under R.C. 5709.12(B) and 5709.121.
         {¶ 5} DCI is certified by the IRS as a Section 501(c)(3) tax-exempt
entity. DCI’s federal tax filings showed an excess of revenues over expenses of
$6,306,492 in 2003 and $32,167,517 in 2004. As of October 2006, DCI operated
195 outpatient dialysis clinics in 26 states and devoted a good deal of its net
income to promoting kidney research. In addition to the West Chester clinic, DCI
also has Ohio clinics in the Walnut Hills, Western Hills, and Mt. Healthy areas in
Cincinnati, in Portsmouth, and in East Liverpool. Although some DCI facilities
generate net income (as does the company as a whole), the West Chester facility
was not one of them: until the August 2008 BTA hearing, the West Chester
facility had suffered an average net loss of $250,000 per year.
         {¶ 6} Medicare covers the cost of dialysis for persons with ESRD
without regard to income. According to testimony at the BTA hearing, Medicare
initially pays 80 percent of the cost of services, with 20 percent remaining the
patient’s responsibility. Patients who qualify for Medicare but who cannot pay
the copayment may also qualify for Medicaid, which would then pay the

1. In its brief, DCI states that its “charter prohibits it from turning away patients that cannot pay,”
but the charter makes no such express commitment.




                                                  2
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copayment. Low-income patients who do not qualify for Medicare may qualify
for Medicaid benefits.     DCI accepts both Medicare and Medicaid patients.
Medicare regulations prohibit a clinic from providing services at a lower fee to
non-Medicare patients than to Medicare patients. As a result, DCI’s clinics must
seek payment from all patients and otherwise follow Medicare and Medicaid
requirements.
       {¶ 7} DCI stated that 62 percent of its patients at the West Chester
facility are Medicare patients, and nine percent are covered by Medicaid. For
many Medicare and Medicaid patients, if the patient is indigent, DCI writes off
the portion that the patient is obligated to pay. DCI stated that it did provide
“charity care” for persons who are ineligible for or are waiting to qualify for
Medicare or Medicaid, but it did not quantify such aid.
       {¶ 8} DCI’s administrator for the Cincinnati area testified before the
BTA that 65 to 75 percent of DCI patients in that area are Medicare patients. At
the West Chester facility, 60 to 65 percent on any given day are Medicare
patients, and 10 percent are Medicaid-only patients. Approximately 15 percent of
DCI’s patients in the area are privately insured. Medicare is DCI’s primary
revenue source.
       {¶ 9} DCI applied half its excess revenue to support kidney research and
half to subsidize its own services – which included covering unpaid costs of
providing care, opening new clinics, and operating a children’s summer camp free
of charge to children who suffer from ESRD or who have received kidney
transplants. DCI’s donations to research at the University of Cincinnati from
2004 to the 2008 hearing exceeded $1.7 million.
       {¶ 10} DCI developed a policy to comply with Medicare regulations
regarding care to indigent patients. Medicare prohibits providers from charging
favorable rates to non-Medicare patients (so as to prohibit a sliding scale of fees).
But Medicare will reimburse a provider for unpaid deductibles or coinsurance



                                         3
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under certain circumstances. Patients in financial need are asked to fill out the
Financial Analysis Form (“FAF”) within ten days of admission to treatment.
Even private-pay patients may submit the form, which allows DCI to ascertain
whether to pursue collection of an unpaid bill or write off amounts as
uncollectible pursuant to Medicare guidelines. At some Cincinnati-area facilities,
DCI had patients who had no outside payment source (or who had failed to
properly apply for government benefits), but there had never been any such
patients at the West Chester facility.
       {¶ 11} DCI receives its patients through hospital referrals.        A social
worker assists patients to assure that all sources of payment are tapped, but if a
patient is referred “with no means to pay,” DCI “do[es] not turn them away.” In
response to the question “Do you provide service without regard to a patient’s
ability to pay at your facilities?” the answer was “That’s true.” DCI’s indigency
policy, however, expressly states that the “indigence policy is not a charity or gift
to patients. DCI retains all rights to refuse to admit and treat a patient who has
no ability to pay.” (Emphasis added.)
       {¶ 12} In his final determination, the Tax Commissioner denied the
exemption, stating that neither DCI’s acceptance of reimbursement from
Medicare and Medicaid nor its write-off of bad debt constituted a charitable act.
       {¶ 13} On appeal, the BTA determined that DCI’s West Chester clinic did
not qualify for exemption under R.C. 5709.12(B) because, “[a]s DCI concedes, it
provides no free or charitable service at the subject property.”    Dialysis Clinic,
Inc. v. Wilkins (Nov. 24, 2009), BTA No. 2006-V-2389, 2009 WL 4100065, *6.
The BTA also concluded that DCI could not qualify under R.C. 5709.121 because
DCI was not a “charitable institution.” Id. The BTA relied heavily on the
indigency policy’s statement that no gift of service is intended and that DCI
reserves the right to refuse treatment based on inability to pay. Id. at *7. The
BTA could discern no distinction between DCI and for-profit dialysis clinics apart




                                         4
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from the DCI’s use of its excess revenue. Id. As for DCI’s contributions to
kidney research, the BTA held that DCI could not claim charitable status
vicariously based on the charitable nature of those to whom it contributed. Id.
       {¶ 14} Finally, the BTA agreed with the commissioner that the record
showed no unreimbursed free or charity care at the West Chester clinic. Because
DCI did not present a charity-care figure, the BTA attempted to construe one from
the record. As a nationwide charity-care figure for all DCI facilities, the BTA
used the Medicare “bad-debt charity write-off” figure for October 2006 through
September 2007: that write-off amounted to under $6.7 million, which was 1.27
percent of $526,891,082 in charges generated for that period. Id. at *8. Although
the BTA also gave reasons for not regarding the write-off as charitable care, the
BTA stated that if the percentage that was written off were viewed as charity care,
it would be “insufficient to meet the charitable service standards required for
exemption.” Id.
       {¶ 15} DCI has appealed, and we affirm the BTA’s decision.
                                    II. Analysis
       {¶ 16} This appeal questions the BTA’s interpretation of the charitable-
purpose exemption.      Under R.C. 5709.12(B), “[r]eal and tangible personal
property belonging to institutions that is used exclusively for charitable purposes
shall be exempt from taxation.”     Furthermore, under R.C. 5709.121(A), “[r]eal
property and tangible personal property belonging to a charitable or educational
institution * * * shall be considered as used exclusively for charitable * * *
purposes by such institution * * * if it meets” one of the specified requirements
under that statute.
       {¶ 17} DCI seeks exemption primarily under R.C. 5709.121(A)(2). “To
fall within the terms of R.C. 5709.121, property must (1) be under the direction or
control of a charitable institution * * *, (2) be otherwise made available ‘for use in
furtherance of or incidental to’ the institution’s ‘charitable * * * purposes,’ and



                                          5
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(3) not be made available with a view to profit.” Cincinnati Nature Ctr. Assn. v.
Bd. of Tax Appeals (1976), 48 Ohio St.2d 122, 125, 2 O.O.3d 275, 357 N.E.2d
381, quoting R.C. 5709.121(A)(2). We hold that the BTA acted reasonably and
lawfully in determining that DCI does not qualify as a “charitable institution.”
A. Property does not qualify for exemption under R.C. 5709.121 simply because
it is owned by, and used to further purposes of, an entity that enjoys exempt status
              under Section 501(c)(3) of the Internal Revenue Code
       {¶ 18} When a BTA decision is appealed, this court looks to see if the
decision was “reasonable and lawful.” Satullo v. Wilkins, 111 Ohio St.3d 399,
2006-Ohio-5856, 856 N.E.2d 954, ¶ 14.          This means that “ ‘[t]he BTA is
responsible for determining factual issues and, if the record contains reliable and
probative support for these BTA determinations,’ ” we will affirm. Id., quoting
Am. Natl. Can Co. v. Tracy (1995), 72 Ohio St.3d 150, 152, 648 N.E.2d 483. On
the other hand, we “ ‘will not hesitate to reverse a BTA decision that is based on
an incorrect legal conclusion.’ ” Id., quoting Gahanna-Jefferson Local School
Dist. Bd. of Edn. v. Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789.
       {¶ 19} DCI contends that because “the provision of nonprofit medical
care is charitable,” it should be recognized as a “charitable institution” for
purposes of R.C. 5709.121. Amicus curiae Ohio Hospital Association (“OHA”)
further explains DCI’s legal argument. OHA refers to R.C. 5709.12(B) and
5709.121 as “two independent property-tax exemptions for charitable property.”
According to OHA, R.C. 5709.12(B) “focuses on the specific use of the
property,” while R.C. 5709.121 conditions exemption “not [on] the uses of the
property, but [on] the general activities and purposes of the owner.” OHA argues
that R.C. 5709.121 affords an exemption “[s]o long as an institution is charitable
or educational,” and to qualify for that exemption, “its property only need be used
incidentally to charitable or educational purposes.” (Emphasis sic.)




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       {¶ 20} But this interpretation significantly expands the scope of the
property-tax exemption for facilities that provide healthcare services.        DCI
focuses on the “high bar” set by the IRS in qualifying institutions for tax-exempt
status pursuant to Section 501(c)(3) of the Internal Revenue Code, arguing that
the federal status by itself “militates heavily in favor of finding it to be a
‘charitable institution.’ ”    OHA is more explicit: “If an institution with a
charitable or educational purpose qualifies as a Section 501(c)(3) entity (exempt
from taxation under Section 501(a)), it likewise should qualify as charitable or
educational under R.C. 5709.121(A).”            In other words, a Section 501(c)(3)
nonprofit corporation should also be characterized as a “charitable institution”
under Ohio law.
       {¶ 21} This expansive construction of R.C. 5709.121 is inconsistent with
the legislative purpose behind its enactment and with ordinary principles of
statutory construction for three reasons.
       {¶ 22} First, R.C. 5709.121 constitutes a refinement of R.C. 5709.12(B).
R.C. 5709.121 does not declare any property to be exempt but links certain
property uses to R.C. 5709.12(B)’s exclusive-charitable-use exemption. Special
treatment under R.C. 5709.121 depends on the owner’s qualifying as a “charitable
or educational” institution.
       {¶ 23} Second, R.C. 5709.121 was enacted to address a restriction on the
availability of exemption under R.C. 5709.12(B). Historically, the exemption for
charitable use had not been permitted when the owner had leased the property to
another, even if that lessee was using the property for charitable purposes. First
Baptist Church of Milford v. Wilkins, 110 Ohio St.3d 496, 2006-Ohio-4966, 854
N.E.2d 494, ¶ 12, quoting Zangerle v. State ex rel. Gallagher (1929), 120 Ohio
St. 139, 145, 165 N.E.709 (Day, J., concurring) (“ ‘ownership and use for
charitable purposes must coincide’ ”); Lincoln Mem. Hosp., Inc. v. Warren
(1968), 13 Ohio St.2d 109, 110, 42 O.O.2d 327, 235 N.E.2d 129 (exemption was



                                            7
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unavailable because the use of the property as a hospital was not the owner’s use);
Northeast Ohio Psych. Inst. v. Levin, 121 Ohio St.3d 292, 2009-Ohio-583, 903
N.E.2d 1188, ¶ 11 (under R.C. 5709.12(B), “it is the owner’s use of the property,
not a lessee’s use, that determines whether the property should be exempted.”
[Emphasis omitted]).
        {¶ 24} Under R.C. 5709.121, when the owner qualifies as a charitable
institution, property used exclusively for charitable purposes2 is exempt if the
property is (i) leased to another charitable institution and used for charitable
purposes, R.C. 5709.121(A)(1)(b), or (ii) made available under the control of the
owner for use in furtherance of the owner’s charitable purposes, R.C.
5709.121(A)(2). This limited expansion of the charitable-use exemption granted
by R.C. 5709.12(B) constitutes the central purpose behind R.C. 5709.121’s
enactment. See First Baptist Church of Milford at ¶ 16, quoting White Cross
Hosp. Assn. v. Bd. of Tax Appeals (1974), 38 Ohio St.2d 199, 203, 67 O.O.2d 224,
311 N.E.2d 862 (Stern, J., concurring) (“ ‘the overall purpose of R.C. 5709.121 is
to declare that the ownership and use of property need not coincide for that
property to be tax exempt’ ”). Although R.C. 5709.121 does expand the scope of
the charitable-use exemption, this expansion has a narrower purpose than that
which DCI and OHA advance.3               We have stated that “R.C. 5709.121 does not
itself grant any exemption. It merely sets forth certain situations in which real
and personal property belonging to charitable or educational institutions * * *
may be considered as used exclusively for charitable * * * purposes.” First
Baptist Church of Milford at ¶ 16; Am.Sub.H.B. No. 817, 133 Ohio Laws, Part

2. The charitable-use exemption that R.C. 5709.121 specifically extends to certain performing arts
centers and other types of use is not at issue in this case.

3. The Legislative Service Commission’s Final Bill Analysis of Am.Sub.H.B. No. 817, 133 Ohio
Laws, Part III, 2646, refers to the exemption at R.C. 5709.12(B) and states that R.C. 5709.121
“expands the present tax exemption” to encompass property “under a lease or contract with the
owner,” providing relief from the rule that “the ownership of the property and its use must
coincide.”




                                                8
                               January Term, 2010




III, 2646 (title of the bill enacting R.C. 5709.121 states that its purpose is to
“clarify the exemption from taxation of property belonging to a charitable
institution.” [Emphasis added]).
       {¶ 25} Third, DCI’s argument would conflate Ohio’s property-tax
exemption with standards under federal law for tax-exempt charities. We have
already rejected that contention, stating that “tying charitable use so tightly to
Congress’s policy goals is wrong because Congress does not define the scope of
charitable use under Ohio law.” NBC-USA Hous., Inc.-Five v. Levin, 125 Ohio
St.3d 394, 2010-Ohio-1553, 928 N.E.2d 715, ¶ 20.
       {¶ 26} Our case law has predicated entitlement to the charitable-use
exemption on services being provided “on a nonprofit basis to those in need,
without regard to race, creed, or ability to pay.” (Emphasis added.) Church of
God in N. Ohio, Inc. v. Levin, 124 Ohio St.3d 36, 2009-Ohio-5939, 918 N.E.2d
981, ¶ 19, citing Vick v. Cleveland Mem. Med. Found. (1965), 2 Ohio St.2d 30, 31
O.O.2d 16, 206 N.E.2d 2, paragraph two of the syllabus. In contrast, federal tax
law affords a charitable exemption on a less restrictive basis. See Rev.Rul. 69-
545, 1969-2 C.B 117; Rev.Rul. 83-157, 1983-2 C.B. 94; M. Hall & J. Colombo,
The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory of Tax
Exemption (1991), 66 Wash.L.Rev. 307, 320-321 (in Rev.Rul. 69-545, the IRS
“abandoned the charity care requirement” and “adopted a ‘per se’ rule” that “an
entity engaged in the ‘promotion of health’ for the general benefit of the
community is pursuing a charitable purpose, even though a portion of the
community, such as indigents, are [sic] excluded from participation.” [Emphasis
added]). We reject a reading of R.C. 5709.121 that essentially substitutes more
lenient federal-law standards for the well-developed Ohio law of charitable use.
 B. An institution is “charitable” under R.C. 5709.121 only if its core activities
   qualify as charity under the standards for determining the charitable use of
                      property pursuant to R.C. 5709.12(B)



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       {¶ 27} We have held that the determination of an owner’s status as a
“charitable institution” under R.C. 5709.121 requires a review of the “charitable
activities of the taxpayer seeking the exemption.”        OCLC Online Computer
Library Ctr., Inc. v. Kinney (1984), 11 Ohio St.3d 198, 201, 11 OBR 509, 464
N.E.2d 572; see also Northeast Ohio Psych. Inst., 121 Ohio St.3d 292, 2009-
Ohio-583, 903 N.E.2d 1188, ¶ 14. Activities have been deemed charitable if they
accord with the standard of charity that we have developed when determining the
charitable use of property directly under R.C. 5709.12(B).
       {¶ 28} In Northeast Ohio Psych. Inst., a nonprofit entity leased property
to another entity that furnished allegedly charitable psychiatric services to the
general public. The property’s owner and lessor sought a tax exemption, claiming
that it could qualify as a charitable institution under R.C. 5709.121. Although the
property owner qualified as a charitable entity under Section 501(c)(3) of the
Internal Revenue Code, we did not view that status as determinative. Instead, we
reviewed the evidence to determine whether the character of the owner’s activities
was charitable. We noted that in addition to leasing part of the building in
question to the psychiatric-services provider, the owner leased the remainder of
the building to other tenants, thereby generating significant revenue. Northeast
Ohio Psych. Inst. at ¶ 8, 9. The owner also furnished psychiatric-staffing services
at other locations, which constituted another source of substantial revenue. Id. at
¶ 15. The exemption was denied.
       {¶ 29} Similarly, in OCLC, 11 Ohio St.3d 198, 11 OBR 509, 464 N.E.2d
572, we rejected a claim that a nonprofit corporation that furnished services to
libraries for a fee that exceeded their cost could qualify as a charitable institution
for purposes of R.C. 5709.121.        We noted that the owner was essentially
advancing a claim of vicarious exemption: it sought to exempt its own property
because it provided services to libraries, which in turn were charitable institutions.
Id. at 200. The owner’s activities, however, “more closely resemble[d] those of a




                                         10
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publisher of library materials or a data base firm specializing in information
retrieval.” Id. at 201. The owner also “engage[d] in fee paying research projects
for the private gain of commercial enterprises,” an endeavor that “preclude[d] the
issuance of a charitable tax exemption.” Id.
        {¶ 30} Because DCI’s core activity involves the provision of a healthcare
service, DCI would qualify as a “charitable institution” under R.C. 5709.121 only
if it provided service “on a nonprofit basis to those in need, without regard to
race, creed, or ability to pay.” Church of God in N. Ohio, 124 Ohio St.3d 36,
2009-Ohio-5939, 918 N.E.2d 981, ¶ 19, citing Vick, 2 Ohio St.2d 30, 31 O.O.2d
16, 206 N.E.2d 2, paragraph two of the syllabus. Applying this standard, we must
determine whether the BTA acted reasonably and lawfully when it found that DCI
did not qualify as a charitable institution.
             C. The BTA acted reasonably and lawfully in determining that
                           DCI is not a charitable institution
        {¶ 31} In finding that DCI did not qualify as a “charitable institution” for
purposes of R.C. 5709.121, the BTA addressed three principal factors.
        {¶ 32} First, the BTA found that DCI charged all patients at the West
Chester site – and most patients at its other facilities – for the services it provides.
The BTA echoed the commissioner’s position that the provision of free,
unreimbursed care constitutes an essential part of a tax-exemption claim for a
healthcare-services provider. But to the extent that the BTA thought that DCI had
to provide some threshold level of unreimbursed care, we disagree, as will be
discussed.
        {¶ 33} Second, the BTA found that DCI could not base its claim on the
donation of surplus revenue to kidney research, because such a claim would
constitute the type of “vicarious exemption” that we rejected in OCLC, 11 Ohio
St.3d 198, 11 OBR 509, 464 N.E.2d 572. The BTA is correct. DCI may not
establish its own core activity as charitable by pointing to a benefit that it confers



                                           11
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upon another entity whose activity is charitable.4 “It is only the use of property in
charitable pursuits that qualifies for tax exemption, not the utilization of receipts
or proceeds that does so.” Hubbard Press v. Tracy (1993), 67 Ohio St.3d 564,
566, 621 N.E.2d 396 ; Wehrle Found. v. Evatt (1943), 141 Ohio St. 467, 26 O.O.
29, 49 N.E.2d 52, paragraph five of the syllabus (“Property held by a nonprofit
corporation for the purpose of ultimate distribution to such selected organizations
as are operated for religious, charitable, scientific, literary or educational purposes
* * * is not exempt from taxation under Section 5353, General Code [the
precursor to R.C. 5709.12(B)]”).
        {¶ 34} Third, the BTA emphasized that DCI’s indigency policy explicitly
stated that it was “not a charity or gift to patients [and that] DCI retains all rights
to refuse to admit and treat a patient who has no ability to pay.” This statement
contradicts the assertion that DCI is committed to providing services on a
nondiscriminatory basis, which is an essential prerequisite for a healthcare
provider to qualify property for exemption.               DCI argues that its articles of
incorporation set forth its charitable purpose and that other evidence demonstrates
that in actuality persons are not turned away for inability to pay. We are not
persuaded, however, that this evidence required the BTA to find that DCI satisfied
the nondiscrimination requirement, given that DCI’s own policy statement
explicitly reserved the right to refuse to treat indigent patients.
        {¶ 35} DCI contends that the legal constraints imposed on it as a
Medicare provider excuse it from complying with Ohio’s prerequisites for
obtaining a charitable-use exemption. This is unpersuasive. First of all, the
Medicare statutes and regulations cited stop short of requiring DCI to adopt the

4. OHA cites Akron Golf Charities, Inc. v. Limbach (1987), 34 Ohio St.3d 11, 516 N.E.2d 222,
for the proposition that donating proceeds can qualify an entity as charitable. That case is
inapposite because it did not involve a claim of real-property exemption but rather of sales-and-
use-tax exemption under former R.C 5739.02(B)(12). Akron Golf Charities was an organization
whose sole purpose was to raise funds for charity by staging golf tournaments. DCI is not such an
institution, with the result that the earlier case does not apply.




                                               12
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disclaimer of charity set forth in its indigency policy. Second, even if Medicare
regulations constrain DCI so that it cannot act as a charity according to Ohio’s
definition, it is still barred from obtaining a charitable-use tax exemption. For just
as federal law does not establish the elements of Ohio’s tax exemption, federal
law cannot excuse an entity’s noncompliance with those elements. The General
Assembly, rather than the courts, must determine whether Medicare providers
should enjoy a property-tax exemption, and if so, the scope of such an exemption.
         D. The operation of the West Chester facility does not qualify as an
             exclusively charitable use of property under R.C. 5709.12(B)
       {¶ 36} In addition to finding that DCI had not proved that it qualified as a
charitable institution under R.C. 5709.121, the BTA also made a separate finding
that “DCI does not qualify for exemption under R.C. 5709.12(B) as an institution
that uses the property exclusively for charitable purposes.” Dialysis Clinic, Inc.,
BTA No. 2006-V-2389, at 12. It is well established that even if it does not
qualify as a charitable institution, DCI would be entitled to exemption from tax if
it showed that the operations at a particular facility constitute an exclusively
charitable use of that particular parcel of real property.      See Highland Park
Owners, Inc. v. Tracy (1994), 71 Ohio St.3d 405, 644 N.E.2d 284 (although
homeowner’s association that owned real property was not a charitable institution,
its use of property as a public park did constitute an exclusively charitable use that
was entitled to exemption).
       {¶ 37} Under the circumstances of this case, however, the determination
of DCI’s exemption claim under R.C. 5709.12(B) does not significantly differ
from the evaluation of the claim under R.C. 5709.121.            Nothing about the
operation of the clinic in West Chester differs from the core activities of DCI that
were reasonably and lawfully found not to qualify DCI as a charitable institution.
The West Chester facility itself does not qualify for exemption.




                                         13
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      E. An institution need not show a particular percentage of care that is
         unreimbursed if it proves its commitment to providing care on a
                               nondiscriminatory basis
       {¶ 38} The Tax Commissioner argues that for a property-tax exemption,
case law imposes the requirement that “a healthcare provider furnish[ ] sufficient
services to those that lack the financial means to pay for such services,” meaning
those who lack sufficient assets or insurance. The record here shows that a person
at the West Chester facility who lacks financial means to pay is usually entitled to
benefits under Medicare or Medicaid, or both. DCI’s decision to serve these
patients to some extent qualifies as the provision of care to persons who otherwise
lack the means to afford it.
       {¶ 39} But the commissioner’s argument goes a step further.            When
asserting that a provider must furnish services to patients who “lack the financial
means” to pay for healthcare, the commissioner means that a provider must
furnish services to those patients who do not qualify for benefits under Medicare
or Medicaid – or at least those patients for whom benefits have not been obtained.
In essence, the commissioner required DCI to show that it provided unreimbursed
care – that is, care financed by DCI itself from funds derived either from
charitable donations or operating surpluses. The denial of DCI’s exemption claim
rested in part on the fact that no unreimbursed care was quantified at the West
Chester facility and that the amount of such care at all of DCI’s Ohio clinics was
small. In affirming the commissioner’s determination, the BTA stated that if the
1.27 percent bad-debt write-off that related to Medicare patients at its clinics were
viewed as charity care, the percentage would be “insufficient to meet the
charitable service standards required for exemption.” Dialysis Clinic, Inc., BTA
No. 2006-V-1389, at 16.
       {¶ 40} DCI contends that contrary to the pronouncements of the
commissioner and the BTA, case law does not require a threshold amount of




                                         14
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unreimbursed care.       We agree.    Because of the existence of Medicare and
Medicaid, which reimburse providers for the provision of dialysis services to the
indigent, few patients actually receive free care that is wholly unreimbursed. A
threshold amount of unreimbursed care is not required, and the commissioner’s
contrary assertion is unfounded.
        {¶ 41} The commissioner relies on O’Brien v. Physicians’ Hosp. Assn.
(1917), 96 Ohio St. 1, 116 N.E. 975; Cleveland Osteopathic Hosp. v. Zangerle
(1950), 153 Ohio St. 222, 41 O.O. 243, 91 N.E.2d 261; Lincoln Mem. Hosp., Inc.
v. Warren (1968), 13 Ohio St.2d 109, 42 O.O.2d 327, 235 N.E.2d 129; and
Bethesda Healthcare, Inc. v. Wilkins, 101 Ohio St.3d 420, 2004-Ohio-1749, 806
N.E.2d 142. Comparing the first three cases, the commissioner seeks to extract a
principle that some sizeable percentage of care must be unreimbursed. But this
theory ignores the reasoning of the cases.
        {¶ 42} In O’Brien, the court affirmed the grant of a property-tax
exemption but observed that in accepting private-pay patients, an institution must
not take on so many paying patients that it cannot accommodate a “usual and
ordinary number of indigent patients applying for admission.” Id., paragraph six
of the syllabus. In the age of Medicare and Medicaid, the usual and ordinary
indigent patient may have access to government benefits, and the modern
healthcare provider is not required to forgo the pursuit of those benefits to qualify
for charitable status.
        {¶ 43} The property-tax exemption granted in O’Brien was not granted to
the owner in Cleveland Osteopathic; the court’s primary concern in that case was
private profit rather than degree of public service. The hospital had appeared to
be a means by which the member physicians secured income and profits. Charges
to the patient led to a profit in excess of the physician’s salary, and the “ ‘fixing of
[each physician’s] salary [was] merely a device for securing the profits of the
institution and not merely compensation for services rendered.’ ” 153 Ohio St. at



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228, 41 O.O. 243, 91 N.E.2d 261, quoting 2 Restatement of the Law, Trusts
(1935) 1167, Section 376, comment b.
       {¶ 44} Likewise, the commissioner’s reading of Lincoln Mem. Hosp.
ignores the reason that this court denied the exemption. In Lincoln, a for-profit
corporate owner’s creation of a nonprofit corporation to lease the property was a
sham created to pay the for-profit owner’s financial obligations. 13 Ohio St.2d at
110, 42 O.O.2d 327, 235 N.E.2d 129. While the court noted the paucity of
nonpaying patients, that was not the dispositive consideration.
       {¶ 45} Finally, Bethesda is inapplicable.       In Bethesda, a nonprofit
corporation sought an exemption for the portion of a building that it leased to
itself for accounting purposes; the area housed a fitness facility that was open
only to dues-paying members and their guests, with minimal access for the public.
The exemption was denied, for although a small number of memberships were
given away through scholarships, analogous to giving “free care,” the facility
itself was not open to the public at large. Id., 101 Ohio St.3d 420, 2004-Ohio-
1749, 806 N.E.2d 142, ¶ 38. That is not the situation here.
       {¶ 46} Although the commissioner’s position is incorrect on the issue
whether a minimum percentage of unreimbursed care is required for a charitable
entity, the record contains sufficient support for the BTA’s ultimate findings.
Accordingly, the property-tax exemption for the West Chester facility was
properly denied.
                                 III. Conclusion
       {¶ 47} For the foregoing reasons, the BTA acted reasonably and lawfully
when it upheld the Tax Commissioner’s denial of DCI’s claim for a charitable-use
exemption. We therefore affirm the decision of the BTA.
                                                                  Decision affirmed.
       BROWN, C.J., and O’CONNOR and CUPP, JJ., concur.
       PFEIFER, LUNDBERG STRATTON, and O’DONNELL, JJ., dissent.




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                                   __________________
        O’DONNELL, J., dissenting.
        {¶ 48} While I concur with the majority’s conclusion that no minimum
percentage of unreimbursed care is required in order to qualify for a charitable-
use exemption, I disagree with the majority’s determination that Dialysis Clinic,
Inc. (“DCI”) is not entitled to the exemption on the ground that it does not provide
service in a nondiscriminatory manner because it reserves the right to refuse
treatment to indigent patients in its effort to comply with Medicare regulations.
The reservation of the right to refuse treatment is not proof that DCI denies
services to indigents. To the contrary, the evidence shows that DCI provides
services to all patients, irrespective of their ability to pay. Because providing
service to indigent patients is a charitable act, in my view, DCI qualifies as a
charitable institution and is tax exempt.              Moreover, because DCI provides
services at the West Chester clinic, the clinic is used exclusively for charitable
purposes, and the property is exempt from tax. Accordingly, I assert that the
determination by the Board of Tax Appeals (“BTA”) denying DCI a charitable-
use tax exemption was unreasonable and unlawful.
                                             Facts
        {¶ 49} DCI is a nonprofit entity that is tax exempt under Section
501(C)(3) of the Internal Revenue Code; it provides dialysis services to patients
who suffer from end-stage renal disease, and it allocates half its excess revenue to
support kidney research and the other half to subsidize its own services. DCI’s
charter5 explicitly prohibits it from operating for “pecuniary gain or profit.”
        {¶ 50} Although many of DCI’s patients are covered by Medicare or
Medicaid, some patients remain responsible for 20 percent of the services

5. DCI is a Tennessee corporation, and its charter is the equivalent of articles of incorporation.
See Tennessee Department of State, Filing Guide, Nonprofit Corporations,
http://www.state.tn.us/sos/forms/fg-np.pdf (accessed October 6, 2010).




                                               17
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rendered. However, when a patient is indigent and DCI is unable to collect a
copayment or deductible, DCI writes off the portion that the patient is unable to
pay as a bad-debt expense, eliminating the patient’s responsibility to pay. In
addition, DCI claimed that it would provide care without charge to patients who
are ineligible for or are waiting to qualify for Medicare or Medicaid. In its efforts
to comply with Medicare regulations that prohibit a clinic from providing services
to non-Medicare patients at a fee lower than the one charged to Medicare patients,
DCI established a policy reserving the right to refuse treatment to those who
cannot pay. An administrator with DCI testified that DCI does not deny services
to individuals “with no means to pay.” The record does show that DCI provides
services to indigent patients and adjusts the balance as a “Non-contracted Write-
off” if patients do not have insurance coverage. As DCI staff attorney William
Horn testified before the BTA, “if there are not [sic] payment sources, then
[service] ends up being free to [patients] if they have no sources to pay.”
                                Law and Analysis
       {¶ 51} Our standard of review for appeals from the BTA is whether its
decisions are “ ‘reasonable and lawful.’ ” Satullo v. Wilkins, 111 Ohio St.3d 399,
2006-Ohio-5856, 856 N.E.2d 954, ¶ 14, quoting Columbus City School Dist. Bd.
Of Edn. v. Zaino (2001), 90 Ohio St.3d 496, 497, 739 N.E.2d 783. This court “
‘will not hesitate to reverse a BTA decision that is based on an incorrect legal
conclusion.’ ” Id., quoting Gahanna-Jefferson Local School Dist. Bd. of Edn. v.
Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789.
       {¶ 52} In this case, DCI sought an Ohio charitable use tax exemption
pursuant to R.C. 5709.12(B) and 5709.121(A)(2). In Bethesda Healthcare, Inc. v.
Wilkins, 101 Ohio St.3d 420, 2004-Ohio-1749, 806 N.E.2d 142, ¶ 27, we quoted
approvingly from the concurring opinion of Justice Stern in White Cross Hosp.
Assn. v. Bd. of Tax Appeals (1974), 38 Ohio St.2d 199, 203, 67 O.O.2d 224, 311
N.E.2d 862, which stated that “ ‘any institution, irrespective of its charitable or




                                         18
                                January Term, 2010




noncharitable character, may take advantage of a tax exemption [pursuant to R.C.
5709.12(B)] if it is making exclusive charitable use of its property.’ ” (Emphasis
sic.) On the other hand, “R.C. 5709.121 does not itself grant any exemption. It
merely sets forth certain situations in which real and personal property belonging
to charitable or educational institutions * * * may be considered as used
exclusively for charitable * * * purposes.” First Baptist Church of Milford v.
Wilkins, 110 Ohio St.3d 496, 2006-Ohio-4966, 854 N.E.2d 494, ¶ 16.                 In
evaluating an entity’s charitable status, this court examines the charitable
activities of the taxpayer; in evaluating a property’s charitable use, this court
examines the charitable activities that occur on the property. See OCLC Online
Computer Library Ctr., Inc. v. Kinney (1984), 11 Ohio St.3d 198, 201, 11 OBR
509, 464 N.E.2d 572 (activities of the taxpayer); Highland Park Owners, Inc. v.
Tracy (1994), 71 Ohio St.3d 405, 406-407, 644 N.E.2d 284 (activities undertaken
at the property).
       {¶ 53} In Church of God in N. Ohio, Inc. v. Levin, 124 Ohio St.3d 36,
2009-Ohio-5939, 918 N.E.2d 981, ¶ 19, we explained that “the provision of
medical or ancillary healthcare services qualifies as charitable if those services are
provided on a nonprofit basis to those in need, without regard to race, creed, or
ability to pay.” Id., citing Vick v. Cleveland Mem. Med. Found. (1965), 2 Ohio
St.2d 30, 31 O.O.2d 16, 206 N.E.2d 2, paragraph two of the syllabus.
       {¶ 54} In denying DCI’s application for a charitable use exemption, the
BTA concluded that DCI does not conduct any charitable activity at its West
Chester clinic because it “charges all patients for dialysis services, voluntarily
enters contracts with government and private insurers to set charges for the
provision of these services, and does not donate any of its services without charge
or at a reduced charge.” Dialysis Clinic, Inc. v. Levin (Nov. 24, 2009), BTA No.
2006-V-2389, at 13. After noting DCI’s reservation of its right not to treat
indigent patients, the BTA concluded that DCI’s practice of writing off



                                         19
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uncollectible debt does not constitute charity, noting that it could find “no
evidence of DCI acting as a donor at any time by relinquishing its legal right to
payment from patients for services provided.” Id. at 14. According to the BTA,
“DCI is not providing its services without an expectation that it will be
compensated” by Medicare, Medicaid, or a private insurer and has not shown that
it provided a requisite amount of unreimbursed care to be deemed a charitable
institution.
        {¶ 55} While I agree with the majority that the BTA erroneously
determined that a taxpayer must demonstrate a minimum threshold or percentage
of unreimbursed care to qualify as a charitable institution, I would further
maintain that DCI engages in charitable activities and qualifies as a tax-exempt
charitable institution.   DCI’s reservation of the right to refuse treatment to
indigent patients does not defeat its charitable status. The evidence shows that
DCI does not exercise this right but instead treats any patient regardless of the
ability to pay and writes off any charges that insurance does not cover.
        {¶ 56} In my view, the conclusion of the Board of Tax Appeals that DCI
does not engage in charitable activities because it reserves the right to refuse to
treat indigent patients unduly restricts the definition of “charity” in a manner
inconsistent with our previous interpretation of the term. In accordance with our
caselaw, DCI is charitable if it operates on a nonprofit basis and does not turn
away individuals because of their inability to pay.       Contrary to the BTA’s
conclusions, the charitable status of a nonprofit entity is not defeated because the
entity reserves the right to refuse to treat an indigent individual when the
institution treats all individuals regardless of ability to pay and does not collect
payment from those who cannot pay. In other words, reserving the right to deny
treatment is not the same as denying treatment or collecting payment from
indigent individuals. See Taylor v. Meridia Huron Hosp. of Cleveland Clinic
Health Sys. (2000), 142 Ohio App.3d 155, 157, 754 N.E.2d 810 (“reserving a




                                         20
                                January Term, 2010




right is not the same as actually exercising that right”); Barker v. Geotech Servs.,
Inc., 9th Dist. No. 22742, 2006-Ohio-3814, 2006 WL 2060556, ¶ 8 (same); see
generally Gowdy v. United States (C.A.6, 1969), 412 F.2d 525, 529
(government’s reservation of the right to inspect the work of an independent
contractor does not impose a duty on the government to exercise the right);
Rawson v. Brown (1922), 104 Ohio St. 537, 547, 136 N.E. 209 (the rights of
parties to a purchase option contract were not affected until the option was
exercised).
       {¶ 57} Because there is no evidence in the record that DCI denies services
to patients who cannot afford to pay and there is evidence that DCI writes off any
charges incurred by patients who cannot pay, it is my view that DCI has
established that it provides services “to those in need, without regard to * * *
ability to pay” and therefore qualifies as a charitable institution pursuant to R.C.
5709.121(A). See, e.g., Vick, 2 Ohio St.2d 30, 33, 31 O.O.2d 16, 206 N.E.2d 2
(the hospital did not lose its charitable status because “[n]o one ha[d] ever been
refused admittance to the hospital on the basis of race, creed, color or inability to
pay”). Further, because the West Chester clinic provides the same services in the
same manner as DCI, I believe that the clinic is used “exclusively for charitable
purposes” pursuant to R.C. 5709.12(B).
       {¶ 58} Because DCI qualifies as a charitable institution and the West
Chester clinic is used exclusively for charitable purposes, it should qualify for a
tax exemption pursuant to R.C. 5709.12(B) and 5709.121(A). Thus, I maintain
that the BTA acted unreasonably and unlawfully when it denied the request for
exemption. Accordingly, I would reverse the decision of the BTA.
       PFEIFER and LUNDBERG STRATTON, JJ., concur in the foregoing opinion.
                              __________________




                                         21
                            SUPREME COURT OF OHIO




       Dinsmore & Shohl, L.L.P., Sean Callan, Seth Schwartz, and Sarah Herron,
for appellant.
       Richard Cordray, Attorney General, and Ryan P. O’Rourke, Lawrence D.
Pratt, and Alan P. Schwepe, Assistant Attorneys General, for appellee.
       Jones Day, Chad A. Readler, and Eric E. Murphy, urging reversal for
amicus curiae Ohio Hospital Association.
       Brindza, McIntyre & Seed, L.L.P., David H. Seed, and Daniel McIntyre,
urging affirmance for amici curiae Ohio School Boards Association, Ohio
Association of School Business Officials, Buckeye Association of School
Administrators, Ohio Job and Family Services Directors Association, County
Commissioners Association of Ohio, Ohio Association of County Behavioral
Health Authorities, Ohio Municipal League, Ohio Fire Chiefs Association, Ohio
Parks and Recreation Association, Ohio Township Association, and Ohio Library
Council.
                           ______________________




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