Colorado State Board of Assessment Appeals No. 68840
Spencer Fane, LLP, Ellen Elizabeth Stewart, Ann M. Schroeder,
Denver, Colorado, for Petitioner-Appellant
Cynthia H. Coffman, Attorney General, Robert H. Dodd, Russell
D. Johnson, Assistant Solicitors General, Denver, Colorado,
for Respondent-Appellee
Cynthia H. Coffman, Attorney General, Emmy A. Langley,
Assistant Solicitor General, Denver, Colorado, for Appellee
ORDER
LOEB
CHIEF JUDGE
¶
1 Children's Hospital Colorado (Hospital) appeals the
final order of the Colorado State Board of Assessment Appeals
(BAA) upholding the order of the Property Tax Administrator
(PTA) denying the Hospital's property tax exemption
application for a child care center (Center) it owns and
operates. The Hospital argues on appeal that the BAA exceeded
its authority in interpreting section 39-3-110(1)(e), C.R.S.
2017, to conclude that the Center's tuition discount
policy did not qualify the Center for an exemption under that
section, and that the BAA improperly concluded that the
Center was not used for a strictly charitable purpose under
section 39-3-108(1), C.R.S. 2017. We affirm the BAA's
order.
I.
Background and Procedural History
A. The
Center
¶
2 The Hospital owns and operates the Center, a child care
facility on the University of Colorado Anschutz Medical
School (CU Anschutz) campus. The Center was developed by the
Hospital with assistance from the University of Colorado (the
University). The Hospital and the University entered into a
contract for construction and operation of the Center, under
which the Hospital agreed to operate the Center for the
primary purpose of providing child care services to the
constituents of the Hospital and CU Anschutz. As acknowledged
by the Hospital, both in the administrative proceedings and
on appeal to this court, "[t]he purpose of the Center is
to provide child care to constituents of the Hospital and [CU
Anschutz] as an employee benefit to attract and retain
quality employees so that the hospitals can better serve
their patients." Accordingly, the record shows that a
vast majority of the Center's available enrollment slots
are reserved for children of employees, staff, and students
at the Hospital and CU Anschutz; there are additional slots
allotted to children of employees of Fitzsimons Redevelopment
Authority (Fitzsimons) because the Center is located on the
site of the old Fitzsimons Army Medical Center. In addition,
remaining enrollment slots at the Center are prioritized for
children of employees who work at the Center and children
from other entities associated with the Hospital and CU
Anschutz.
¶
3 The Hospital contracted with Bright Horizons Children's
Centers LLC (Bright Horizons) to run the day-to-day
operations of the Center. Bright Horizons is a for-profit
entity and receives compensation from the Hospital to operate
the Center; the amount Bright Horizons receives from the
Hospital is determined by contract. Parents pay tuition
directly to Bright Horizons.
¶
4 The Center has a written tuition assistance policy that
purportedly defines "how enrolled families may be
eligible for discounted tuition rates." In this policy,
families are informed that "[t]uition assistance, based
on a family's income, size, and the number of children in
a family enrolled at the Center, is available." The
tuition assistance policies at issue in this appeal are
"Income Assistance" and "Sibling
Discount." The income assistance policy gives all
families with an income below 150% of the federal poverty
level (federal poverty line) a flat 10% tuition discount. The
sibling discount is a flat 5% discount for siblings of
enrolled children, regardless of the family's income.
B.
Application Process and Appeal to the BAA
¶
5 The Hospital filed an application for exemption from
property tax for the Center under section 39-3-108(1)(b), an
exemption for health care facilities. However, because the
Center is not a licensed health care facility, that exemption
was facially not applicable to the Center.
¶
6 Under the rules and regulations of the Division of Property
Taxation (Division), [1] when an application is submitted under a
particular statute and that statute is not applicable, an
investigator for the Division can consider whether the
property qualifies for exemption under a different statute.
Div. of Prop. Taxation Rule I.B.11, 8 Code Colo. Regs.
1304-2. Thus, the investigator assigned to the Hospital's
application considered the Hospital's application under
section 39-3-108(1)(a), an exemption for a nonresidential
property operated for strictly charitable purposes, and
section 39-3-110, an exemption for qualified child care
centers.
¶
7 In October 2014, the PTA issued a tentative determination
denying the Hospital's application, finding that the
Center was not used for strictly charitable purposes because
it did not benefit an indefinite number of persons; the
denial was also based on the Hospital's failure to show
that the Center provided its services for free or on the
basis of ability to pay under section 39-3-110(1)(e). In
response to this tentative determination, the Hospital filed
supplemental financial information, including information on
the Center's tuition discount policy and demographics of
the children enrolled at the Center.
¶
8 In April 2016, the PTA issued a final decision denying the
Hospital's application for the Center. The PTA denied the
application because the Hospital's "financial
figures arising from the usage of this property do not
qualify it for exemption under subsection (1)(e) of C.R.S.
39-3-110. Furthermore, its usage of the property does not
satisfy the requirements under Rule IV.B.1 and C.R.S.
39-3-108(1)(a)."[2]
¶
9 Pursuant to section 39-2-117(5)(b), C.R.S. 2017, the
Hospital exercised its right to appeal to the BAA. The BAA
held a hearing on the matter in November 2016. The Hospital
presented several witnesses at the hearing, including the
Hospital's Chief Financial Officer, the Hospital's
Director of Human Resource Operations, the Director of the
Center, and CU Anschutz's Director of Initiatives. These
witnesses testified as to the purposes of the Center, the
Center's enrollment demographics, and details of the
tuition assistance policy. Relevant to the present appeal and
the BAA's order, the Hospital presented the following
information at the hearing:
• In her opening statement, the Hospital's counsel
stated that the Center "is a daycare center for the
faculty and students of the [CU Anschutz] campus. The
evidence will show that in order for [CU Anschutz] to recruit
and maintain exceptional faculty and students . . . it needs
to provide a benefit, such as the [Center]." (Emphasis
added.)
• There are 248 enrollment slots available at the
Center.
• The majority of enrollment slots at the Center are
reserved for children of employees, students, and staff at
the Hospital and CU Anschutz.
• Enrollment slots are prioritized in the contract
between the Hospital and Bright Horizons as follows: (1)
reserved spaces for children of the Hospital's employees,
children of CU Anschutz employees, and children of Fitzsimons
employees; (2) siblings of the Hospital's employees'
children enrolled at the Center; (3) children of Bright
Horizons staff employed at the Center; (4) "other
priorities agreed to by" the Hospital and Bright
Horizons; and (5) children from the community.
• According to testimony from the Hospital's Chief
Financial Officer, "children from the community"
are considered to be any enrolled children from "outside
[CU Anschutz] and then anyone outside of [the
Hospital]." This includes children of employees of
Fitzsimons; children of employees of the organization that
provides billing services for physicians at CU Anschutz
(UPI); children of employees of UC Health (UCH), the
University of Colorado Hospital Authority; children of Bright
Horizons staff; and children from the general community.
Thus, "children from the community" primarily
includes groups of children whose parents are associated with
the Hospital or CU Anschutz, several of which are already
included in prioritized categories for enrollment slots.
• An exhibit identifying the above groups as categories
showed the breakdown of children enrolled at the center
during 2014, the relevant period at issue here. Notably, no
children from the general community were enrolled after
children in all other prioritized categories (the Hospital,
CU Anschutz, Fitzsimons, Bright Horizons, UPI, and UCH) were
enrolled.
• As of November 2014, there were 305 children on the
waiting list for enrollment at the Center: 281 from the
Hospital and CU Anschutz, and only one from the general
community (the 23 others were from UCH and UPI).
• The Hospital pays Bright Horizons fees to maintain and
operate the Center. Bright Horizons receives a 3 to 5% profit
from these fees. However, the Hospital operates the Center at
a loss.
• The Hospital's witnesses could not say how many
children, if any, received the written tuition assistance
discount based on the federal poverty line. However, four
children received a 50% tuition discount that was not covered
by the written policy and was based entirely on the
discretion of the Center's Director. There were no set
criteria for this 50% discount, and it was not disclosed on
the Center's website or in the enrollment paperwork. At
least two of the children who received the 50% discount were
children of Bright Horizons employees.
• There are child care centers available on at least two
other University campuses. These centers are
"auxiliary" programs, which means that they
function only on their ability to collect tuition from the
parents. The Hospital witnesses could not say if these child
care centers were available to the general community or
limited to University students and faculty; they also could
not say if the centers were run by the University or a third
party such as Bright Horizons, or if the centers were
"part of the University.
¶
10 Counsel for the PTA called one witness, Stan Gueldenzopf,
the Manager of the Division's exemption section.
Gueldenzopf testified as to the Hospital's application
and why the investigators concluded that the Center was not
eligible for exemption under section 39-3-110 or section
39-3-108(1)(a). As to section 39-3-110, Gueldenzopf focused
his testimony on subsection (1)(e), which requires that a
child care center offer its services at rates based on the
recipient's ability to pay, because that was the basis
for the PTA's denial as listed on the final
determination.
¶
11 Referring to the Division's definition of
"charges on the basis of ability to pay" provided
in its rules and regulations, Gueldenzopf testified that in
his experience, a "scale" that would consider a
family's financial status and ability to pay the required
tuition would need to be based on multiple factors, such as
income and family size, and offer a range of several tuition
rates. He concluded that the Center's federal poverty
line discount was not "adequate" because it only
took into account one element - family income as compared to
the federal poverty line. In his testimony, he provided
examples of how the Center's federal poverty line
discount would actually work, which highlighted the fact that
the discount was not "reflective of . . . [a]
family's ability to pay." Gueldenzopf concluded that
the federal poverty line discount offered by the Center was
not a "scale," as referred to in the applicable
Division rules and regulations.
¶
12 Throughout the hearing, the Hospital argued that the
Center met the requirement of subsection (1)(e) because of
its federal poverty line and sibling discount policies. The
Hospital focused its argument on the poverty line discount
and asserted that the Division had not specified, through its
rules and regulations or in its correspondence with the
Hospital, a definition of the term "scale," nor had
it stated that a scale required a range of tuition options.
Thus, it argued, the federal poverty line discount was a
scale because it measured a family's ability to pay
through income. The Hospital also argued that the Center was
used for strictly charitable purposes because it provided a
"gift" to the public and because it lessened the
burdens of government.
C. BAA
Final Order
¶
13 In February 2017, the BAA issued an order upholding the
PTA's determination that the Hospital was not entitled to
exemption from property taxes for the Center because it did
not charge for its services based on the recipient's
ability to pay as required by section 39-3-110(1)(e), and
because the Center was not used for strictly charitable
purposes as required by 39-3-108(1).
¶
14 Regarding section 39-3-110(1)(e), the BAA found that the
Center did not charge families tuition based on their ability
to pay. It specifically credited Gueldenzopf's testimony
discussing scales that charge on the basis of ability to pay,
and it concluded that, based on that testimony and the
Division's definition of "charges on the basis of
ability to pay" in Division of Property Taxation Rule
IV.E.5, 8 Code Colo. Regs. 1304-2, such scales "required
the use of a graduated series of total cost for each child
based on the financial status of the recipient." The BAA
found that the Center's tuition assistance based on the
federal poverty line did not meet that requirement because
parents with a stronger financial status paid the same as
parents with a significantly weaker financial status, and the
BAA further provided examples of scenarios to illustrate this
point.
¶
15 Under section 39-3-108 and Colorado's constitutional
provision on property tax exemptions, the BAA found that,
based on the Hospital's own statements, the Center was
operated for the business purposes of providing a recruitment
tool and employee benefit for the Hospital and CU Anschutz;
that the Center's services were not provided to an
indefinite number of persons, but were largely, if not
solely, dependent on the recipient's voluntary
association with certain groups; that the minimal tuition
assistance provided indicated that the Center was not being
operated for a charitable purpose; that the Center was, at
least in part, operated for corporate profit because Bright
Horizons made a 3 to 5% profit from the fees paid to it by
the Hospital; and that the Center did not lessen the burdens
of government because the evidence presented at the hearing
did not show that CU Anschutz (i.e., the State of Colorado)
would be required to provide a child care center at taxpayer
expense if the Hospital did not operate the Center.
¶
16 The Hospital now appeals the BAA's final order
pursuant to section 39-2-117(6).
II.
Constitutional and Statutory Framework
¶
17 We begin by summarizing the legal framework that governs
property tax exemptions in Colorado and the issues in this
case.
¶
18 "Each claim for tax exemption must be determined upon
the facts presented and in light of the applicable
constitutional and statutory provisions." Bd. of
Assessment Appeals v. AM/FM Int'l, 940 P.2d 338, 343
(Colo. 1997).
¶
19 The state's ability to exempt personal and real
property from taxes derives from the Colorado Constitution:
"Property, real and personal, that is used solely and
exclusively for religious worship, for schools or for
strictly charitable purposes . . . shall be exempt from
taxation, unless otherwise provided by general
law." Colo. Const. art. X, § 5 (emphasis
added). Courts have consistently concluded that the language
"unless otherwise provided by general law" gives
the General Assembly the ability and power "to limit,
modify, or abolish" constitutional exemptions.
McGlone v. First Baptist Church of Denver, 97 Colo.
427, 431, 50 P.2d 547, 549 (1935); Anderson Ranch Arts
Found. v. Prop. Tax Adm'r, 729 P.2d 992, 994
(Colo.App. 1986) (citing McGlone, 97 Colo. at 431,
50 P.2d at 549).
¶
20 The BAA concluded that the Center did not qualify for
exemption under section 39-3-110's requirements for child
care centers. The BAA also determined that the Center was not
used for strictly charitable purposes as contemplated by the
Colorado Constitution and section 39-3-108(1)(a).
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