August 21, 1989

Todd Wilkinson
Kingsbury County State's Attorney
P.O. Box 29
De Smet, SD 57231-0029

OFFICIAL OPINION NO. 89-25

Taxability of Home used by Hospital Administrator

Dear Mr. Wilkinson:

You have requested an official opinion relating to the following factual situation:

FACTS:

North Central Homes is a nonprofit corporation and recognized as an exempt organization under 501(c)(3) of the United States Internal Revenue Code of 1954 which owns and operates a hospital and nursing home in Kingsbury County, South Dakota. North Central also owns at a separate location, a home in which the hospital administrator has resided since it was built in 1967.

Recently North Central closed the Lake Preston hospital facility and it was discovered that the hospital administrator's home had been inadvertently omitted from the tax rolls since 1967. Proceeding under SDCL 10-11-3, notice was given to North Central that the County Auditor was adding the property to the assessment rolls and requiring North Central to appear before her at a specified time, within fifteen days, to show cause why the property should not be added to the assessment rolls.

At the meeting with the County Auditor, North Central claimed that as a nonprofit corporation and recognized as exempt under 501(c)(3) that the home in which the administrator lived was exempt from taxation pursuant to SDCL 10-4-9.3. Kingsbury County Director of Equalization's position was that SDCL 10-4-9.3 is not applicable wherein the home is used solely as a residence structure and not in any way utilized for health care services.

Based upon these facts, you have asked the following question:

QUESTION:

Is a hospital or nursing home administrator's residence tax exempt when the property owned by a nonprofit organization is recognized as an exempt organization under 501(c)(3) when no health related services are performed in the structure?

GENERAL DISCUSSION:

You have used as your principal statutory citation SDCL 10-4-9.3. That section relates to property used primarily for human health care and health care related purposes. As presently written, this section was enacted in 1986 and amended in 1988. Prior to that time the Legislature separately classed all property belonging to any charitable, benevolent, or religious society and used exclusively for charitable, benevolent, or religious purposes. If it met the criteria of SDCL 10-4-9, it was exempt from ad valorem taxation.

As that statute was interpreted, the residence of an employee of a charitable, benevolent or religious society, owned by such society was exempt from taxation. In the case of In re Scottish Rite Temple Association, (1934) 62 S.D. 204, 252 N.W. 626, the South Dakota Supreme Court held that the residence of the secretary of a Masonic Lodge was exempt just as the use of a parsonage for the residence of a minister and his family is exempt as being for a religious purpose. The Court held that the residence property bears the same relation to the benevolent and charitable organization that a parsonage does to a religious organization.

The question then becomes: Did the 1986 amendment to SDCL 10-4-9 result in a change to the existing interpretation of that section and thereby render taxable property which heretofore was exempt? In my opinion, it did not.

While the law relating to property of health care institutions was removed from the general exemption statute in 1986, that amendment only dealt with property which was used primarily for human health care and health care related purposes. It did not take away from such institution any charitable or benevolent exemption they otherwise enjoyed based on charitable or benevolent characteristics which they might have had. Thus, the residence of a hospital or nursing home administrator would continue to fall under the criteria set forth for such institutions where the purpose of the use was to promote the operation of the hospital or nursing home.

I should call your attention to the fact that if this residence was provided without charge to the administrator, or as a part of his salary, it might well be that the leasehold interest thus created would be taxable to the administrator as provided in SDCL 10-4-1 and 10-4-2. Also in this connection, see Official Opinion 78-10 and the authority cited therein for taxation of this sort of leasehold interest.

Respectfully submitted,

ROGER A. TELLINGHUISEN
ATTORNEY GENERAL

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