Karen HARDESTY, in Her Official Capacity as Boone County Assessor, Appellant
v.
NORTH ARKANSAS MEDICAL SERVICES, INC., and North Arkansas Regional Medical Center, Inc., Appellees
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APPEAL
FROM THE BOONE COUNTY CIRCUIT COURT [NO. 05CV-17-275],
HONORABLE RUSSELL ROGERS, JUDGE
Ronald
P. Kincade, Mountain Home, for appellant.
Mitchell,
Williams, Selig, Gates & Woodyard, P.L.L.C., Little Rock, by:
John Keeling Baker, Megan D. Hargraves, and Devin R. Bates,
for appellees.
OPINION
N. MARK
KLAPPENBACH, Judge
Appellant Karen Hardesty, in her official capacity as Boone
County Assessor, appeals from the circuit court’s order that
granted a tax exemption to appellees North Arkansas Medical
Services, Inc., and North Arkansas Regional Medical Center,
Inc. (collectively "the hospital").[1] The hospital
sought tax-exempt status for its seven parcels[2] of land in
Harrison, Arkansas, for the 2016 and 2017 tax years, relying
on the public-charity tax exemption provided by article 16,
section 5(b) of the Arkansas Constitution, which provides
that "buildings and grounds and materials used
exclusively for public charity" are exempt from
taxation. Following a bench trial, the circuit court found
that the hospital had carried its burden of
proof,[3] entitling
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it to the tax exemption, and County Assessor Hardesty
appeals. We affirm the circuit court’s order.
In
civil bench trials, the standard of review on appeal is
whether the circuit court’s findings were clearly erroneous
or clearly against a preponderance of the evidence.
Tadlock v. Moncus, 2013 Ark.App. 363, 428 S.W.3d
526. A finding is clearly erroneous when, although there is
evidence to support it, the reviewing court, on the entire
evidence, is left with a firm conviction that a mistake has
been made. Id. Due regard shall be given to the
opportunity of the circuit court to judge the credibility of
the witnesses. Ark. R. Civ. P. 52(a)(1) (2018).
We
begin with some basic taxation principles. Taxation is the
rule, and exemption is the exception. City of
Fayetteville v. Phillips, 306 Ark. 87, 811 S.W.2d 308
(1991). Exemptions from taxation must always be strictly
construed, regardless of merit, in favor of taxation and
against exemption. Id. On appeal, we review tax
cases de novo, setting aside the findings of fact by the
circuit court only if clearly erroneous. Ark. Teacher
Ret. Sys. v. Short, 2011 Ark. 263, 381 S.W.3d 834.
In
analyzing the hospital’s tax-exemption request, we are guided
by Arkansas Supreme Court case law. Tax-exempt status for
charitable hospitals has been recognized in Arkansas for over
one hundred years. See Hot Springs Sch. Dist. v.
Sisters of Mercy, 84 Ark. 497, 106 S.W. 954 (1907). More
recently, our supreme court interpreted article 16, section
5(b) in the context of charitable hospitals in Burgess v.
Four States Memorial Hospital, 250 Ark. 485, 465 S.W.2d
693 (1971), holding that "a benevolent and charitable
organization’s property used as a hospital may be
constitutionally exempt from taxation (1) if it is open to
the general public, (2) if no one may be refused services on
account of inability to pay, and (3) if all profits from
paying patients are applied to maintaining the hospital and
extending and enlarging its charity." Burgess,
250 Ark. at 491, 465 S.W.2d at 697. The entity seeking the
tax exemption must show that it is a charitable organization
and that the property claimed exempt is used exclusively for
charitable purposes. Sebastian Cty. Equalization Bd. v.
W. Ark. Counseling & Guidance Ctr., Inc., 296 Ark. 207,
752 S.W.2d 755 (1988).
There
is no dispute that the hospital is technically a charitable
organization, that the hospital and its clinics are open to
the general public, and that no one is refused services due
to inability to pay. Hardesty does not take issue with the
first two Burgess factors. In fact, Hardesty argues
that the characterization of the taxpayer is irrelevant. She
does not argue that generating revenue necessarily requires
disqualification. Hardesty’s argument is that the hospital
and its clinics are operated or "used" to provide
medical care in exchange for money, like any other medical
clinic. Hardesty argues that the hospital operates with an
expectation of payment for the services it provides, that it
generates millions of dollars of annual revenue, that its
free services and patient debts that are written off are a
very small percentage of the overall income received, and
that the free services and patient-debt write-offs within the
clinics are an even smaller percentage of the income
generated by the clinics. Hardesty contends that this means
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the hospital’s property is "not used exclusively as a
public ...